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2018 (10) TMI 1398 - AT - Income TaxDisallowance of deduction claimed u/s 43B - duties so paid include excise duty, custom duty on import/ purchase of inputs/components and also amount of duty paid in PLA account - AO disallowed claim on the ground that deduction under Section 43B of the Act is allowable only where the amount claimed as deduction on actual payment basis is charged to the P&L Account - whether he assessee is in the nature of advance payment of duty, liability in respect of which has not accrued/ crystallized ? - Held that - ITAT under similar set of facts has decided an identical issue after discussing in detail and following the decision cited before it including the decision of special Bench of the ITAT in the case of DCIT vs. Glaxo Smith Klin Consumer Health Care Ltd. 2007 (7) TMI 334 - ITAT CHANDIGARH holding that the excess amount of excise duty reflected in the account-current is nothing but actual payment of excise duty even though mentioned as advance payment and hence allowable as deduction under sec. 43B of the Act in the year of payment. The special bench has further clarified that the allowing of deduction on payment basis could not result in double deduction under any circumstance. We thus respectfully following the above decision set aside the matter to the file of the Assessing Officer to decide the issue afresh after affording opportunity of being heard to the assessee as per the decision cited above in the case of assessee itself for the assessment year 2006-07. Customs duty included in closing inventory - Held that - It is clarified by the Assessee that the amount of ₹ 69,12,41,610/- represents customs duty included in closing stock and ₹ 50,28,051/- represents customs duty on tools imported by the Assessee which were made available by it to its contract manufacturers, also. described as vendors in the question of law framed on the same issue in subsequent AY 2001-02. In view of the decision in Berger Paints Limited v. CIT 2004 (2) TMI 4 - SUPREME COURT question (ix) is answered in the affirmative i.e. in favour of the Assessee and against the Revenue. In this regard, the observations of the ITAT in para 41 of the impugned are reiterated, viz. that the AO should, while giving effect to the ITAT s order, ensure that no double deduction is allowed. Therefore, he will ensure that the deduction allowed in this year under Section 43B of the Act is included in the income of the next year when such opening stock is disposed of. Nature of receipt - subsidy - revenue or capital - Held that - Subsidy given to the assessee post accomplishment of the project or expansion there, without any obligation to utilize the subsidy only for repayment of term loans undertaken by the assessee for setting up new units/expansion of existing business, or to liquidate the cost incurred in creating the capital asset or its expansion, is only in the nature of the revenue receipt and is liable to be brought to tax. We, therefore, uphold the addition on this count. Disallowance of royalty paid - nature of expenditure - Held that - The amount of royalty considered by the Assessing Officer as capital expenditure should be allowed as a revenue expenditure, and at the same time, depreciation allowed by the Assessing Officer on this amount should be taken back. Disallowance of expenditure incurred on Corporate Social Responsibility - Held that - The words, for the purpose of business should not be limited to the meaning of earning profit alone . It is also important to note that the purpose has to be seen from the point of view of the businessman and should not be seen with reference to narrow objective of earning profits immediately. Certain expenditure may not reap profits immediately, but may be advantageous in the long run, by creating goodwill and brand image. These submissions of the Ld. AR are supported by the Income Tax statute. But at the same time, it can be seen that Explanation 2 has been inserted in section 37 of the Act by the Finance (No.2) Act, 2014 w.e.f. 1.04.2015 to provide that CSR expenses referred in section 135 of the Companies Act, 2013 shall not be deemed to be incurred for the purpose of business. The aforesaid Explanation inserted w.e.f. 1.04.2015. Therefore, in the present assessment year the said explanation will not be applicable. Hence, the expenditure has to be allowed because ultimately the assessee was publicizing its product at the prominent places by maintaining them such as parks and this has direct impact on the sales promotions of the assessee company. Disallowance of club expenditure - Held that - The aforesaid expenditure has been incurred for business purposes on the grounds of commercial expediency and there is no element of any personal benefit being granted either to the employee or director. The Tax Auditors have amply clarified this position vide clause 17(b) of the Tax Audit Report. The aforesaid expenditure is, thus, allowable as deduction. See COMMISSIONER OF INCOME-TAX VERSUS SAMTEL COLOR LIMITED 2009 (1) TMI 26 - DELHI HIGH COURT . Adjustment on account of payment of royalty for use of brand name - Held that - There is a direct nexus between the revenue of the taxpayer and the payment of royalty. Therefore, the Revenue cannot dispute the benefit derived by the taxpayer from payment of such royalty. Not allowing credit of TDS Certificates - Held that - Assessee has submitted the TDS certificates which has to be considered by the Assessing Officer. Therefore, we restore this issue to the file of the Assessing Officer and direct the Assessing Officer to verify the additional TDS certificates produced by the Assessee and thereafter allow the credit of the same. Needless to say, the assessee be given the opportunity of the hearing by following the principles of the natural justice. Hence, Ground No. 18 is partly allowed for statistical purpose. error in computation of interest u/s 234B - Held that - The Assessing Officer is, directed to recompute interest under section 234B of the Act, as aforesaid. As per section 234C of the Act, interest is required to be calculated on the basis of returned income and not on the basis of assessed income. The Assessing Officer erred on facts and in charging interest u/s 234C on assessed Income instead of returned Income as per the provisions of Act. The aforesaid issue is now covered in favour of the assessee by the Delhi Bench of the Tribunal in assessee s own case for AY 2007-08 and 2008-09. Therefore, we remand back this issue to the file of the Assessing Officer and direct the Assessing Officer to recomputed interest under section 234C of the Act, as aforesaid - Appeal of assessee is partly allowed for statistical purpose.
Issues Involved:
1. Legality of the assessment order and DRP directions. 2. Disallowance under Section 43B of the Income Tax Act. 3. Disallowance under Section 14A of the Income Tax Act. 4. Treatment of Sales Tax Incentive/Subsidy. 5. Disallowance of Royalty Payments. 6. Disallowance of Corporate Social Responsibility (CSR) Expenditure. 7. Disallowance of Club Membership Fees. 8. Transfer Pricing Adjustments. 9. Interest Computation under Sections 234B and 234C. Detailed Analysis: 1. Legality of the Assessment Order and DRP Directions: The Tribunal dismissed the grounds challenging the legality of the assessment order and DRP directions as general in nature. 2. Disallowance under Section 43B of the Income Tax Act: The Tribunal examined various disallowances under Section 43B, including excise duty, customs duty, and other statutory payments. The Tribunal referred to numerous precedents and held that the payments made by the assessee were allowable as deductions on a payment basis under Section 43B. The Tribunal directed the Assessing Officer to re-verify and allow the deductions accordingly, emphasizing the principle of judicial consistency. 3. Disallowance under Section 14A of the Income Tax Act: The Tribunal remanded the issue back to the Assessing Officer, directing to re-compute the disallowance under Section 14A read with Rule 8D, considering only those investments that resulted in exempt income. The Tribunal emphasized the need for the Assessing Officer to record satisfaction regarding the correctness of the assessee's claim before applying Rule 8D. 4. Treatment of Sales Tax Incentive/Subsidy: The Tribunal, following the decision of the jurisdictional High Court in the case of Johnson Matthey India Pvt. Ltd., held that the sales tax subsidy received by the assessee was in the nature of a capital receipt and not liable to tax. The Tribunal dismissed the Assessing Officer's contention that the subsidy was a revenue receipt, emphasizing the purpose test laid down by the Supreme Court in the case of Ponni Sugars and Chemicals Ltd. 5. Disallowance of Royalty Payments: The Tribunal allowed the entire royalty payment as revenue expenditure, following the decision of the jurisdictional High Court in the case of Hero Honda Motors Ltd. The Tribunal held that the payment was for the use of licensed information and did not result in the acquisition of any asset or enduring benefit in the capital field. 6. Disallowance of Corporate Social Responsibility (CSR) Expenditure: The Tribunal allowed the CSR expenditure as a business deduction under Section 37(1) of the Act, noting that the expenditure was incurred for business purposes and there was no element of personal benefit. The Tribunal emphasized that the Explanation 2 to Section 37, which disallows CSR expenditure, was applicable only from 1.04.2015 and not for the assessment year under consideration. 7. Disallowance of Club Membership Fees: The Tribunal allowed the deduction for club membership fees, following the decision of the Supreme Court in the case of Samtel Color Ltd. The Tribunal noted that the expenditure was incurred for business purposes and was allowable under Section 37(1) of the Act. 8. Transfer Pricing Adjustments: The Tribunal noted that the transfer pricing adjustment made on account of AMP expenses was deleted pursuant to an order passed by the TPO under Section 154 of the Act. Consequently, the grounds relating to AMP expenses were dismissed as infructuous. The Tribunal also deleted the transfer pricing adjustment on account of payment of royalty for the use of the brand name, following its earlier decisions in the assessee's own case. 9. Interest Computation under Sections 234B and 234C: The Tribunal directed the Assessing Officer to recompute interest under Sections 234B and 234C, following the method prescribed in CBDT Circular No. 549 and the decisions of the Tribunal in the assessee's own case for earlier years. The Tribunal emphasized that interest under Section 234B should be computed with reference to the returned income and not the assessed income. Conclusion: The Tribunal allowed the appeal of the assessee partly for statistical purposes, directing the Assessing Officer to re-verify and re-compute various disallowances and adjustments as per the Tribunal's directions and the principles laid down in the cited judicial precedents.
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