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2024 (3) TMI 542 - AT - Income TaxDisallowance u/s 14A - mandation of recording satisfaction - Assessee earned a dividend income from domestic companies/mutual funds and also on interest on tax-free bonds - suo-moto disallowance is based on the report obtained from the accountant, who after verifying assessee s books of accounts and relevant records has estimated the amount of disallowance - HELD THAT - In the present case, it is evident from the record that the AO without recording any satisfaction regarding the claim of the assessee in respect of expenditure incurred in relation to exempt income proceeded to compute the disallowance under section 14A read with Rule 8D of the Rules. Therefore, no reason for upholding the disallowance made by the AO under section 14A read with Rule 8D of the Rules. Accordingly, the same is directed to be deleted. As a result, ground no.1 raised in assessee s appeal is allowed. Nature of expenses - expenditure incurred for the evaluation of various business opportunities - HELD THAT - We, at the outset, find that while examining the allowability of expenditure incurred by the assessee for obtaining feasibility report in respect of home improvement and home decor business, the coordinate bench of the Tribunal in assessee s own case in the assessment year 2012-13 cited supra, vide order dated 01/03/2024, held that home improvement and home decor business is completely a new line of business, which is different from the existing business of manufacturing paints and enamels and therefore the expenditure incurred for obtaining feasibility study report is capital in nature. Thus we find no merits in the submission of the assessee in respect of expenditure incurred for obtaining a feasibility report in respect of home improvement/decor and kitchen space business and accordingly, the aforesaid expenditure is held to be capital in nature. Expenditure incurred by the assessee on exploring business opportunities in furniture and furnishings - From the perusal of the description of the furniture and furnishings, in respect of which the assessee explored business opportunity with the help of the consultant, we are of the considered view that same constitutes a completely new line of business and the same is not an extension of the existing business of manufacturing of paints and enamels by the assessee. Accordingly, the expenditure incurred on exploring business opportunities in furniture and furnishings is held to be capital in nature. We find that the assessee also incurred expenditure on exploring business opportunities in bathroom space, which includes tiles, sanitary ware, bath fittings, and accessories like sliding glass partitions, glass doors, shower stalls, etc. In view of our aforesaid findings, the same cannot be said to be an extension of the existing line of business of the assessee of manufacturing paints and enamels. Accordingly, this expenditure is held to be capital in nature. Expenditure on exploring the decorative paints market in Turkey and Indonesiathe - Scope of the market survey is in line with the existing business of the assessee of manufacturing paints and enamels. Therefore, we are of the considered view that the expenditure incurred on exploring the decorative paints market in Turkey and Indonesia is for the extension of the existing line of business of the assessee and thus is in the nature of revenue expenditure. Accordingly, the AO is directed to delete the addition in respect of this expenditure. Expenditure on pre-acquisition due diligence of the paint manufacturing company in Ethiopia - From the documents available on record, it is evident that the impugned expenditure was incurred towards the process of acquisition of majority shareholding in Kadisco Chemical Industry PLC., Ethiopia, which is a capital transaction. In any case, the expenditure cannot be said to be in line with the existing business of the assessee of manufacturing paints and enamels or an extension of the existing line of business of the assessee, as the expenditure was incurred on pre-acquisition due diligence of the company which cannot be equated with market survey or preparing feasibility report for extension of the business. Accordingly, this expenditure is held to be capital in nature. Allowability of expenditure incurred u/s 35(2AB) - expenditure was disallowed by DSIR (as per Certificate in Form No. 3CL) as the same was not incurred for R D purpose - HELD THAT - We find that while deciding a similar issue the coordinate bench of the Tribunal in assessee s own case in Asian Paints Ltd 2014 (1) TMI 16 - ITAT MUMBAI for the assessment year 2007-08, restored the issue to the file of the AO with a direction to decide the same afresh after verifying whether the expenditure in question has been incurred by the assessee on research and development, which is eligible for deduction under section 35(2AB). Allowance of balance additional depreciation - assets are put to use for less than 180 days in the previous year - AO held that there is no such provision in the Act to claim a balance 10% additional depreciation in the year under consideration for additions made in the earlier year - HELD THAT - We find that the coordinate bench of the Tribunal in assessee s own case 2022 (7) TMI 1508 - ITAT MUMBAI for the assessment year 2011-12, decided the similar issue in favour of the assessee as held assessee had purchased and installed new plant and machinery in the preceding assessment year, which is eligible for additional depreciation @20%. However, since the new assets were put to use for less than 180 days in the preceding assessment year, the claim of additional depreciation allowable at 20% was restricted to half of it, i.e. 50%. Thus, in effect, the assessee was allowed additional depreciation of 10%. Now, it is well settled by a number of judicial precedents that if for use of new plant and machinery for a period of less than 180 days the entire amount of additional depreciation cannot be claimed in the subject assessment year, the balance unclaimed amount can be claimed in the subsequent assessment year. It is also a fact on record, against similar claim allowed by Commissioner Appeals in assessee's own case in Assessment Year 2008- 29, the revenue has not preferred any appeal before the ITAT - Decided against revenue. TDS u/s 194H - Allowance of expenditure incurred on the Trip Scheme - non deduction of TDS - HELD THAT - We find that while deciding a similar issue in favour of the assessee the coordinate bench of the Tribunal in assessee s own case in ACIT v/s Asian Paints Ltd 2022 (2) TMI 1428 - ITAT MUMBAI held that to expand its business the assessee has devised a trip scheme wherein it organized foreign trips to its dealers and distributors based on achieving a specific target assigned by the assessee. On achieving such target, the dealer/distributor is entitled to undertake the trip organized by the assessee through SOTC. Thus, from the aforesaid facts it is very much clear that the entire trip scheme is for the purpose of expanding assessee's business by encouraging the dealers and distributors to achieve a specific target of purchase. Thus, the scheme is closely linked to assessee's business activity. It is also a fact that the assessee has not paid any amount to the dealers and distributors, but amount spent has been paid to SOTC for organizing the trip. It is also a fact on record that the amounts paid to SOTC has been subjected to TDS as per the relevant provision. Therefore, the allegation of the Assessing Officer that the amount has not been subjected to deduction of tax is without any basis. As regards the applicability of section 194H of the Act, by no means, the Assessing Officer has established on record that dealers/distributors are agents of the assessee. Further, as we find, the trip scheme has been introduced by the assessee from past 20 years and the deduction claimed by the assessee on account of such trip scheme has never been disallowed by the Assessing Officer except for the impugned assessment year. Therefore, even applying the rule of consistency, the expenditure claimed by the assessee has to be allowed. Addition on account of waiver of Royalty received from two subsidiaries - Royalty is calculated @3% of associated enterprises sales as per the agreement duly signed and executed - HELD THAT - We find that while deciding a similar issue in favour of the assessee, the coordinate bench of the Tribunal in assessee s own case for the assessment year 2012-13 2024 (3) TMI 484 - ITAT MUMBAI held that the net sale price of the products sold can only be determined at the end of the financial year and accordingly, the amount of Royalty payable to the assessee can only be computed thereafter. Therefore, prior to the end of the financial year, no amount accrues or arises to the assessee outside India. In the present case, prior to the determination of the net sale price of the products sold, the assessee had decided to waive Royalty by 2%. No material has been brought on record to show that there is no understanding between the assessee and its overseas subsidiaries to waive the Royalty. Such being the facts, we are of the considered view when only 1% Royalty is payable by the overseas subsidiaries, therefore the AO has no authority to make an addition of the balance 2% Royalty waived by the parties, which is nothing but a notional income considered taxable by the AO in assessee s hands. Before concluding, it is pertinent to note that in the assessment year 2011-12, the coordinate bench of the Tribunal decided a similar issue in favour of the assessee. Sundry balances written off - HELD THAT - Since a similar issue has already been restored to the file of the AO in similar factual matrix, therefore, we deem it appropriate to restore this issue to the file of the AO with similar directions as rendered by the coordinate bench in the preceding year 2024 (3) TMI 484 - ITAT MUMBAI assessment year 2012-13. As a result, ground no.6 raised in Revenue s appeal is allowed for statistical purposes. Nature of receipt - Addition of subsidy received from the Government of Maharashtra under Package Scheme of Incentives, 2007 - HELD THAT - We find that while deciding a similar issue pertaining to the taxability of subsidy received by the assessee under Package Scheme of Incentives, 2007 of the Government of Maharashtra, the coordinate bench of the Tribunal vide order dated 05/03/2024 passed in assessee s own case in ACIT v/s Asian Paints Ltd 2024 (3) TMI 485 - ITAT MUMBAI for the assessment year 2013-14 held that the subsidy received by the assessee is capital in nature as the incentives/subsidy granted was only to encourage the setting up of industries in the less developed areas of the State and the same was not for the purpose of running the business more profitably. Since in the year under consideration, the assessee received the impugned subsidy under under Package Scheme of Incentives, 2007 of the Government of Maharashtra, therefore, respectfully following the decision rendered in assessee s own case cited supra, we find no infirmity in the impugned order on this issue in treating the subsidies as capital in nature. Addition of the electricity grant received from the Government of Haryana - Whether the 100% exemption from electricity duty received by the assessee is capital or revenue in nature? - HELD THAT - We noted that the Hon ble Supreme Court in Ponni Sugars and Chemicals Ltd. 2008 (9) TMI 14 - SUPREME COURT and Sahney Steel Press Works Ltd 1997 (9) TMI 3 - SUPREME COURT laid down the purpose test. Thus, if the purpose of the subsidy is to set up a new unit or substantial expansion of the existing unit then the subsidy is treated as capital in nature. However, if the purpose of the subsidy is to enable the assessee to run the business more profitably then the receipt is revenue in nature. Analysing the incentives/subsidy received by the assessee under the Industrial Policy, 2005 of the Government of Haryana, it is sufficiently evident that the incentives/subsidy was received for setting up a project at Industrial Model Township, Rohtak for the manufacturing of paints and the same was not to enable the assessee to run its business more profitably. Accordingly, we find no infirmity in the impugned order in treating the electricity grant received by the assessee as capital in nature. As a result, ground no.8 raised in Revenue s appeal is dismissed.
Issues Involved:
1. Disallowance under section 14A of the Income Tax Act, 1961. 2. Disallowance of expenditure incurred for evaluation of various business opportunities. 3. Allowability of expenditure under section 35(2AB) of the Act. 4. Allowance of balance additional depreciation. 5. Allowance of expenditure incurred on the Trip Scheme. 6. Deletion of addition on account of waiver of Royalty received from two subsidiaries. 7. Allowance of sundry balances written off. 8. Deletion of the addition of subsidy received from the Government of Maharashtra. 9. Deletion of the addition of the electricity grant received from the Government of Haryana. Summary: 1. Disallowance under section 14A of the Income Tax Act, 1961: The Tribunal found that the AO did not record the requisite satisfaction as required under section 14A(2) of the Act before making the disallowance under Rule 8D. The Tribunal, following the decision in the assessee's own case for the assessment year 2012-13, directed the deletion of the disallowance made by the AO. Accordingly, ground no.1 raised in the assessee's appeal was allowed. 2. Disallowance of expenditure incurred for evaluation of various business opportunities: The Tribunal upheld the disallowance of expenditure incurred for obtaining feasibility reports in respect of home improvement/decor, kitchen space, furniture and furnishings, and bathroom space as capital in nature. However, expenditure incurred on exploring the decorative paints market in Turkey and Indonesia was held to be revenue in nature. The AO was directed to restrict the disallowance accordingly. Ground no.2 raised in the assessee's appeal was partly allowed. 3. Allowability of expenditure under section 35(2AB) of the Act: The Tribunal directed the AO to verify the nature of the expenditure disallowed by the DSIR and allow the same if it was incurred for the purpose of R&D. This direction followed the consistent approach adopted in the assessee's own case in earlier years. Ground no.1 raised in the Revenue's appeal was dismissed. 4. Allowance of balance additional depreciation: The Tribunal upheld the allowance of balance additional depreciation claimed by the assessee for assets acquired in the earlier year, following the consistent decisions in the assessee's own case in preceding assessment years. Ground no.3 raised in the Revenue's appeal was dismissed. 5. Allowance of expenditure incurred on the Trip Scheme: The Tribunal upheld the allowance of expenditure incurred on the Trip Scheme for dealers, holding that the expenditure was for business purposes and not in the nature of commission. This decision was consistent with earlier years' decisions in the assessee's own case. Ground no.4 raised in the Revenue's appeal was dismissed. 6. Deletion of addition on account of waiver of Royalty received from two subsidiaries: The Tribunal held that the waiver of Royalty was based on the financial position of the subsidiaries and did not constitute notional income. This decision followed the consistent approach adopted in the assessee's own case in preceding assessment years. Ground no.5 raised in the Revenue's appeal was dismissed. 7. Allowance of sundry balances written off: The Tribunal restored the issue to the AO for de novo adjudication, directing the assessee to file necessary details/documents in support of its claim. This followed the approach adopted in the assessment year 2012-13. Ground no.6 raised in the Revenue's appeal was allowed for statistical purposes. 8. Deletion of the addition of subsidy received from the Government of Maharashtra: The Tribunal held that the subsidy received under the Package Scheme of Incentives, 2007, was capital in nature, following the decision in the assessee's own case for the assessment year 2013-14. Ground no.7 raised in the Revenue's appeal was dismissed. 9. Deletion of the addition of the electricity grant received from the Government of Haryana: The Tribunal held that the electricity grant received under the Industrial Policy, 2005, was capital in nature, following the purpose test laid down by the Hon'ble Supreme Court. Ground no.8 raised in the Revenue's appeal was dismissed. Conclusion: The appeal by the assessee was partly allowed, while the appeal by the Revenue was partly allowed for statistical purposes.
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