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2024 (8) TMI 1289 - AT - Income TaxTP adjustment - ALP of export commission paid to Honda Motor Co. Ltd., Japan - HELD THAT - While deciding identical issue in assessee s own case in the latest order passed in assessment year 2017-18 2023 (8) TMI 1179 - ITAT DELHI assessee has successfully demonstrated not only the benefits but has also shown that the profitability is higher (as per the charts exhibited elsewhere). Considering the totality of the facts we have no hesitation in directing the AO/TPO to delete the impugned addition on account of export commission. TP adjustment of payment of royalty - As decided in own case 2023 (3) TMI 1520 - ITAT DELHI allowed assessee s claim of deduction in respect of technical know-how payment. Disallowance of signage expenses - The expenditure was incurred on signage for display of the name of the assessee at the dealer's premises. However, once the same is fixed at dealers site then the Courts have held that it does not satisfy the test of ownership with the assessee and the expenditure is to be allowed as revenue expenditure - We find support from the ratio laid down in CIT vs Honda Siel Power Products Ltd 2017 (6) TMI 524 - SUPREME COURT Thus, we are of the view that the expenditure to the extent claimed by the assessee is to be allowed in the hands of the assessee and not/the entire expenditure. Disallowance of sales tools expenses - Respectfully following the decision of the coordinate bench in assessee s own case for assessment year 2015 16 2021 (5) TMI 949 - ITAT DELHI we also hold that sales tool expenditure are revenue expenditure in nature and therefore the disallowance made by the learned assessing officer is directed to be deleted. Capitalizing a part of the royalty expenses - We must observe that neither the AO nor learned Dispute Resolution Panel have found any substantial difference in factual position relating to past assessment years and the impugned assessment year. As discussed earlier, the issue has been consistently decided in favour of the assessee in its own case in assessment years 2012-13 to 2017-18. Having gone through the facts and material available on record, we do not find any good reason to deviate from the consistent view taken by the Tribunal on the issue in earlier assessment years. Hence, respectfully following the decision of the Co-ordinate Bench in Assessment Years 2012-13 to 2017-18 we direct the AO to allow assessee s claim. Disallowance of deduction claimed towards education cess - Identical issue in assessee s own case in assessment year 2017-18 2023 (8) TMI 1179 - ITAT DELHI the coordinate Bench has followed the decision in case of JCIT vs. Chambal Fertilizers Chemicals Ltd., 2022 (12) TMI 1098 - SC ORDER expounded that term tax u/s 40(a)(ii) of the Income Tax Act should include cess. Assessee in his elaborate submission tried to distinguish this case law. But we are not convinced. Hence, we decide this issue in favour of Revenue. Therefore, in our view, the issue is no more res integra. Moreover, an amendment has been brought to section 40(a)(ii) by Finance Act, 2022 with retrospective effect from 01.04.2005 by inserting Explanation-3, which explains that the term tax shall include and shall be deemed to have always included any surcharge or cess, by whatever name called, on such tax. Thus, in view of said amendment in the Act, assessee s claim is unsustainable. Accordingly we uphold the decision of the departmental authorities on this issue. Ground raised is dismissed. Refund of excess dividend distribution tax (DDT) paid - Though, on a reading of Total Oil India Pvt. Ltd 2023 (4) TMI 988 - ITAT MUMBAI (SB) it is clear that the issue raised by the assessee is covered against it, however, before us, learned counsel appearing for the assessee submitted that there are certain facets relating to the issue, which needs to be examined, as on those aspects, the decision of Special Bench is either silent or can be distinguished. Be that as it may, considering the fact that the issue was never examined on merits by the departmental authorities, we are inclined to restore the issue to the file of the AO for de novo adjudication after considering the submissions of the assessee and keeping in view the decision (supra). Ground is allowed for statistical purposes. Disallowance of deduction of technical know-how expenses paid to parent company - AO disallowed assessee s claim summarily, as it was neither raised in the original return of income nor through revised return of income - HELD HAT - It is the specific case of the assessee that similar claim made in earlier assessment years in course of proceedings before the departmental authorities have been allowed by the Tribunal. Since the issue has not been factually examined by the departmental authorities, as they rejected assessee s claim summarily, we are inclined to restore the issue to the AO for de novo adjudication after giving due and reasonable opportunity of being heard to the assessee. Ground is allowed for statistical purposes.
Issues Involved:
1. Transfer Pricing Adjustment on Export Commission 2. Transfer Pricing Adjustment on Royalty Payment 3. Disallowance of Signage Expenses 4. Disallowance of Sales Tools Expenses 5. Capitalization of Royalty Expenses 6. Disallowance of Education Cess 7. Refund of Excess Dividend Distribution Tax (DDT) 8. Deduction of Technical Know-How Expenses Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustment on Export Commission The assessee challenged the addition made on account of transfer pricing adjustment to the arm's length price (ALP) of export commission paid to Honda Motor Co. Ltd., Japan. The Transfer Pricing Officer (TPO) rejected the assessee's benchmarking using the Transactional Net Margin Method (TNMM) and instead used the Comparable Uncontrolled Price (CUP) method, determining the ALP at nil. The Dispute Resolution Panel (DRP) upheld the adjustment, following their earlier directions in the assessee's own cases. The Tribunal found that this issue is a legacy issue and has been consistently decided in favor of the assessee in past assessment years. The Tribunal directed the TPO/AO to delete the adjustment on account of ALP of the export commission payment. 2. Transfer Pricing Adjustment on Royalty Payment The assessee contested the addition made on account of transfer pricing adjustment of payment of royalty. The TPO benchmarked the payment of royalty separately using the CUP method and determined the ALP of royalty payment at nil. The DRP upheld the adjustment. The Tribunal noted that this issue has been consistently decided in favor of the assessee in past assessment years. Respectfully following the earlier decisions, the Tribunal directed the AO to delete the addition. 3. Disallowance of Signage Expenses The assessee claimed deduction for expenditure incurred on purchasing glow signboards/signage, which were displayed at dealers' locations. The AO disallowed the claim, treating it as capital expenditure. The DRP directed the AO to verify the Tribunal's decision in favor of the assessee for earlier years. The Tribunal found that this issue has been consistently decided in favor of the assessee in past assessment years and directed the AO to delete the disallowance. 4. Disallowance of Sales Tools Expenses The assessee claimed deduction for expenses incurred on sales tools/fixtures placed at dealers' outlets. The AO disallowed the claim, treating it as capital expenditure. The DRP directed the AO to follow the directions of the panel in earlier years. The Tribunal found that this issue has been consistently decided in favor of the assessee in past assessment years and directed the AO to delete the disallowance. 5. Capitalization of Royalty Expenses The AO treated 25% of the royalty expense as capital expenditure, disallowing Rs. 296,11,30,002/- and allowing depreciation @ 25% on such amount. The DRP directed the AO to verify the Tribunal's decision in favor of the assessee for earlier years. The Tribunal found that this issue has been consistently decided in favor of the assessee in past assessment years and directed the AO to allow the assessee's claim. 6. Disallowance of Education Cess The assessee claimed deduction for education cess amounting to Rs. 29,01,52,420/-. The DRP did not entertain the claim as it was not made in the return of income. The Tribunal noted that the issue is covered against the assessee by the decision of the Hon'ble Supreme Court in JCIT vs. Chambal Fertilizers & Chemicals Ltd., 450 ITR 164, and upheld the decision of the departmental authorities. 7. Refund of Excess Dividend Distribution Tax (DDT) The assessee claimed that dividends paid to shareholders in Japan and Thailand should be subject to the beneficial rate under the respective Double Taxation Avoidance Agreements. The departmental authorities rejected the claim, stating it was not made in the return of income. The Tribunal restored the issue to the AO for de novo adjudication, considering the submissions of the assessee and the decision of ITAT, Special Bench, in DCIT vs. Total Oil India Pvt. Ltd. 8. Deduction of Technical Know-How Expenses The AO disallowed the deduction of technical know-how expenses as it was not claimed in the return of income. The DRP also rejected the claim on the same ground. The Tribunal restored the issue to the AO for de novo adjudication, considering the submissions of the assessee and giving due opportunity of being heard. Conclusion: The appeal was partly allowed, with the Tribunal directing the deletion of various disallowances and adjustments, while upholding the disallowance of education cess. The Tribunal also restored certain issues to the AO for fresh adjudication. The order was pronounced in the open court on 05/02/2024.
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