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TMI Blog2014 (3) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... tax is of recipient of services and since assessee is the receiver of services, it is the liability of the assessee company to bear service tax – Decided in favour of Assessee. Disallowance of technical know-how royalty payment on traded goods – Restriction of technical know-how royalty to 1% in respect of manufactured goods - Held that:- The decision in Johnson & Johnson Limited Versus Commissioner of Income Tax-LTU [2014 (2) TMI 555 - ITAT MUMBAI] followed - Royalty payments has been approved by RBI and therefore deserves to be allowed - as the payments have been made in the light of the agreement with J&J US and as per the approval/guidelines of the RBI, there is no reason to disallow the tax and R&D Cess paid on technical royalty - the AO is directed to delete the addition made – Decided in favour of Assessee. Disallowance of tax and R&D Cess paid on technical know-how royalty – Held that:- The decision in Johnson & Johnson Ltd. Versus Assistant Commissioner of Income-tax [2014 (2) TMI 978 - ITAT MUMBAI] followed - Royalty payments has been approved by RBI and therefore deserves to be allowed - as the payments have been made in the light of the agreement with J&J US and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of Assessee. Disallowance of depreciation claimed on testing equipments – Held that:- The decision in Johnson & Johnson Limited Versus Commissioner of Income Tax-LTU [2014 (2) TMI 555 - ITAT MUMBAI] followed - the claim of depreciation on the testing equipments allowed – thus, the AO is directed to allow the claim of depreciation on testing equipments – Decided in favour of Assessee. Short grant of credit for TDS – Held that:- The issue needs verification at the assessment stage – thus, the AO is directed to verify the TDS certificates and then allow the correct claim as per the provisions of the law – Decided in favour of Assessee. - I.T.A. No. 7133/Mum2012 - - - Dated:- 19-2-2014 - Shri I. P. Bansal, JM And Shri N. K. Billaiya, AM,JJ. For the Appellant : Shri R.R. Vora For the Respondent : Shri Ajeet Kumar Jain ORDER Per N. K. Billaiya, AM: This is an appeal by the assessee against the order passed by the Addl. Commissioner of Income Tax u/s. 143(3) r.w. section 144C(13) of the Act for the A.Y. 2008-09. 2. The assessee has raised 38 grounds and 2 additional grounds of appeal. At the very outset, the Ld. Counsel for the assessee stated tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmed the adjustments made by the AO stating that this issue is coming from earlier year. We find that an identical issue was considered by the Tribunal in A.Y. 2006-07 in ITA No. 83/Mum/2011 and at para-33 of its order, the Tribunal deleted the adjustments made on this account. Facts and issue being identical, respectfully following the findings of the Tribunal in A.Y 2006-07, the addition of Rs, 1172,64 lakhs is deleted. Ground No. 5 is accordingly allowed. 11. Ground No. 6 relates to the restriction of technical know-how royalty to 1% in respect of manufactured goods which resulted into a disallowance of Rs. 2221.26 lakhs. 12. This issue has been considered by the DRP at para-1 on page-8 of its order wherein it confirmed the adjustments made by the TPO stating that this issue is coming from earlier year. A perusal of the record shows that an identical issue was considered by the Tribunal in A.Y. 2006-07 in ITA No. 83/Mum/2011 at para -31 to 33 of its order wherein the Tribunal has mentioned that a similar issue was considered by the Tribunal in assessee's own case for A.Y. 2002-03 in ITA No. 4092/M/2007 and deleted the TP adjustment on this account. As no new facts have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of Sec. 92B r.w. section 92F squarely apply on the facts and incurring of AMP expenses by the assessee for promoting the brands owned by its AEs was a deemed international transaction for which arm's length compensation should be received by the assessee. The TPO proceeded by applying residual Profit Split Method (PSM) to determine the arm's length profits that the assessee should be earning. The TPO took the consolidated profit of the Johnson Johnson group and computed 35% of the Global profit of the Johnson Johnson group at Rs. 21697.80 crores attributing the major activities of Johnson Johnson group under the following heads: a) Manufacturing 50% b) Research and development - 15% c) Advertising, marketing and sales promotion - 35%. 19. The AMP expenditures spent by the assessee were at 1.54% of the total AMP expenditure spent by the group. The TPO took 1.54% and applied it to the global profit of Rs. 21697.80 crores and computed profit at Rs. 334.14 crores attributable to the assessee on account of the AMP expenditure. Since the assessee had already shown corporate profits at Rs. 115.81 crores, the TPO deducted 35% of these profits from the sum computed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AE which is inconsistent with the Indian transfer pricing regulations. The grievance of the assessee was considered by the DRP at length. The DRP did not accept the contention of the assessee that AMP expenditure does not constitute any international transaction. The DRP was convinced that a portion of AMP expenditure actually confers a benefit on the assessee's AE which constitute an international transaction for which the assessee is entitled to compensation. However, the DRP was not convinced with the computation made by the TPO on the basis of the residual profits split method (PSM) but the DRP agreed with the application of the bright line test for determining the non routine AMP expenditure to be recovered from the AE. The DRP was of the view that the choice of comparables becomes critical for the estimation of the bright line. The DRP also did not agree with the selection of the comparables by the TPO which were Colgate Pamolive (India) Ltd., Hindustan Unilever Ltd. and Procter Gamble because in their cases, the AMP has been related to development of brands that were owned by their AEs and any promotion or such brand would constitute related party transaction. The DRP also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. DR that the additional supporting documents are being filed for the first time therefore requires verification at the assessment stage. 26. We have carefully considered the orders of the lower authorities and the additional documents filed by the assessee in support of its claim. We agree with the submissions of the Ld. DR that these additional supporting documents need to be verified by the TPO. We, therefore, restore this issue back to the files of the TPO. The TPO is directed to decide this issue denovo after considering the documents filed by the assessee and after giving reasonable opportunity of being heard to the assessee in the light of the decision of the Tribunal in the case of L.G. Electronics India Pvt. Ltd. Vs ACIT 152 TTJ (Del)(SB) 273 /ITA No.5140/Del/2011 . The assessee is directed to file necessary details afresh for the consideration of the TPO in support of its claim. Both the parties are free to consider any other evidence which come to their notice during the course of the denovo assessment proceedings. Ground No. 11 to 23 are allowed for statistical purpose. 27. Ground No. 24 and 25 relate to the disallowance of expenditure incurred on production of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder wherein the DRP observed that this issue is coming from earlier assessment years wherein the DRP upheld the additions made by the AO. The DRP further observed that A.Y. 2006-07, it was directed to the AO to allow the actual cash discount given by the assessee during the year. The DRP confirmed the disallowance, at the same time directed the AO to allow actual cash discount given by the assessee during the year. 34. We find that a similar view was taken by the Tribunal in A.Y. 1999-2000 and 2000-01 and 2001-02 in ITA Nos. 2680/M/03, 3289/M/04 and 9437/M/04. The assessee has alternatively claimed that reserves which were not allowed in the earlier assessment year amounting to Rs. 18,29,724/- was written back during the current year. We accordingly, restore this issue back to the files of the AO to decide this alternative grievance of the assessee, if the cash discount reserve was not allowed in the earlier assessment year, the right back of the same would amount to double taxation, therefore the same should be deleted after due verification. Ground No. 28 is allowed for statistical purpose. 35. Ground No. 29 relates to the disallowance of 1% of travelling expenditure. This g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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