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TMI Blog2015 (11) TMI 1737X X X X Extracts X X X X X X X X Extracts X X X X ..... e same to be capital in nature - claim allowed Disallowance on account of interest expenditure made under Rule 8D - Held that:- We direct the Assessing Officer to delete the disallowance on account of interest expenditure made under Rule 8D of the Income Tax and as regards the administration expenses, we direct the Assessing Officer to set off the suomotu disallowance made by the assessee on this account. Disallowance claimed in respect of provision towards long-term incentive plan holding the same to be an unascertained liability, observing that the liability has not been computed on a scientific basis - Held that:- The provision on account of incentive plan made by the assessee during the year is an ascertained liability. Further, we see that the Assessing Officer has nowhere objected to the method of quantifying the said provision by the assessee. The ground of appeal raised by the assessee is allowed. Credit of TDS - Held that:- Assessing Officer is directed to allow the credit of TDS amounting to 58,717/- while computing the income tax liability. Not allowing the relief claimed u/s 90 - Held that:- It is seen that relief of 2,69,492/- claimed under section 90 by the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture of 1% of the three comparables, viz. Herman Milk Foods, Milk Specialties Ltd. and Mohan Dairies Ltd. In this way, in order passed under section 92CA(3) of the Act, the TPO proposed an adjustment of ₹ 1,26,87,00,171/-. 5. The said adjustment was also proposed by the Assessing Officer in its draft order and on objection raised by the assessee before the DRP, this adjustment was got confirmed. This way and addition of ₹ 1,26,87,00,171/- was made for adjustment on account of arms' length price of the AMP activities. 6. The learned counsel for the assessee brought to our notice the fact that on the similar issue of adjustment on account of AMP expenditure, Special Bench of the Tribunal was constituted in the case of L.G. Electronics India Pvt. Ltd., 140 ITD 41 (Del) (SB), where the assessee also intervened in its case for a preceding assessment year, i.e. assessment year 2007-08. Though the facts of the assessee, being an intervener, were not considered by the Special Bench, the Bench laid down certain criterion to compute the adjustment to be made, holding that the AMP expenditure may result in international transaction. The case of the assessee for assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Special Bench in the case of L.G. Electronics India (P.) Ltd. (supra), as stated by the counsels appearing before us, we are in agreement that since the order of the Hon'ble High Court in the case of Sony Ericsson Mobile Communications India (P.) Ltd. (supra) was not available at the time of the order for assessment years 2007-08 and 2008-09 in case of the assessee, the same cannot be followed as such. 9. Since the issue is now to be decided in the background of the decision of the Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communications India (P.) Ltd. (supra), we have very carefully gone through the said judgment. We would like to quote certain observations made in the said judgment, which are vital to decide the present issue in question. 10. Firstly, at paras 133 and 134 of the said judgment, the Hon'ble High Court has quoted paras 6.36 to 6.38 of the OECD, Transfer Pricing Guidelines on the applicability of TP provisions for AMP activities to limited risk distributors and to full risk distributor : "133. Transfer Pricing Officers have referred to paragraphs 6.36 to 6.39. For the sake of completeness, we would quote the said paragraph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utor would obtain in comparable circumstances. In some cases, a distributor may bear extraordinary marketing expenditures beyond what an independent distributor with similar rights might incur for the benefit of its own distribution activities. An independent distributor in such a case might obtain an additional return from the owner of the trademark, perhaps through a decrease in the purchase price of the product or a reduction in royalty rate. 6.39 The other question is how the return attributable to marketing activities can be identified. A marketing intangible may obtain value as a consequence of advertising and other promotional expenditures, which can be important to maintain the value of the trademark. However, it can be difficult to determine what these expenditures have contributed to the success of a product. For instance, it can be difficult to determine what advertising and marketing expenditures have contributed to the production or revenue, and to what degree. It is also possible that a new trademark or one newly introduced into a particular market may have no value or little value in that market and its value may change over the years as it makes an impression on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Hon'ble High Court distinguish between functional profile of a limited risk distributor, the finding reads as under : "124. There is a difference between a pure and a simple independent distributor and a distributor with marketing rights. An independent distributor with a full marketing right is a person or an entity legally independent of the manufacturer, who purchases goods from the manufacturer for re-sale on its own accounts. The transaction between the two is a straightforward sale in which the distributor takes all economic risk of product distribution and ultimately gains or makes loss depending upon market and other conditions. The manufacturer is not concerned. In case of a low or no risk distributor and he virtually acts as an agent for the loss and gain is that of the manufacturer. There is no economic risk on distribution of profits. He is, therefore, entitled to fixed remuneration for the self efforts, i.e., relating to the task or function of distribution. Similar will be the position of a low risk distributor with marketing functions, except that the said distributor should be compensated for the marketing, including AMP function." 13. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erm 'plain vanilla distributor'. When we use the words 'plain vanilla distributor' we do not mean plain vanilla situations, but value additions and each party making valuable unique contribution." From the perusal of above, it is quite evident that TNM method is not at all an appropriate method for computing ALP of AMP activities. 14. From the overall reading of the judgment, the proposition laid down by the Hon'ble Court can be summarized in simple terms to the effect that in case of a manufacturer, there are two activities, which are to be segregated, one is prime manufacturing activity and the other relating to AMP. Further, for a manufacturer, TNMM is not an appropriate method. Therefore, in the result, the ALP of the AMP activity has to be computed by using any other suitable method. However, it is to be taken care that if cost plus method is used, the selling expenses are to be excluded from the total AMP expense, which has been held by the Hon'ble High Court elsewhere in this order. This is also one of the observations of the Special Bench in the case of L.G. Electronics India (P.) Ltd. (supra) which has been affirmed by the Delhi High Court. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firmed the action of the Assessing Officer. 18. The learned counsel for the assessee before us explained that the deduction of closing balance of excise deposit amounting to ₹ 27,12,737/- being balance in PLA as on 31.3.2009 under section 43B of the Act was claimed by the assessee. Correspondingly, an amount of ₹ 32,62,786/- representing the opening balance of excise deposit lying in PLA, which was claimed as deduction in the return of income in the preceding assessment year 2008-09 was added back. The assessee in fact, has offered to tax an amount of ₹ 5,50,049/- as part of its taxable income being decremental difference between the Excise deposits with the Excise Department. Further it was submitted that the issue stands covered in favour of the assessee in its own case by the Special Bench of the Tribunal in assessment year 2001-2002, Dy CIT v. Glaxo Smithkline Consumer Healthcare Ltd. [2007] 107 ITD 343 (Chd.). It was also explained that similar issue has arisen in a number of years preceding the relevant assessment year, whereby the issue has been decided in favour of the assessee in all the years starting from 1998-99 to assessment year 2008-09. 19. The le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resents the excess payment made to the excise authorities, which as per the assessee could be used to offset the payment of excise duty on the final products. The difference in the total balance of two accounts i.e. on 31.3.2007 and 31.3.2006 of ₹ 36,87,481/- was claimed by the assessee as a deduction under the provisions of section 43B of the Act. The present issue raised vide ground No.3 stands covered in favour of the assessee by the order of the Special Bench of the Chandigarh Tribunal in assessee's own case relating to assessment year 2001-02, reported in 107 ITR 343 (Chd)(SB) (supra). The said deduction had been consistently allowed in the case of the assessee i.e. in the preceding years 1998-99 to 2000-01 and thereafter in assessment years 2002-03 to 2006-07. The Tribunal in ITA No.1238/Chd/2010 relating to assessment year 2006-07 - order dated 25.1.2012 vide para 49 allowed the claim of the assessee in turn following the ratio laid down by the Hon'ble Punjab & Haryana High Court in CIT v. Raj & Sandeeps Ltd. (supra) observing as under: "49. The present issue is covered by the decision of Special Bench in the case of the assessee itself. Further the Juri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce under section 43B of the Act and held as under: A plain reading of s. 43B clarifies that : (a) deduction claimed by the assessee must be "otherwise" allowable under the other provisions of the Act; (b) the deduction must relate to any sum payable by way of tax, duty, cess or fee; (c) the assessee must have incurred liability in respect of such tax, duty, etc. On fulfilling these conditions, the assessee's claim can be allowed in the year in which actual payment is made, notwithstanding the year in which liability is incurred. The term "liability to pay such sum was incurred by the assessee" together with the words "a sum for which the assessee incurred liability" in Expln. 2 underline that payment must relate to the incurred liability to be called 'any sum payable'. In the present case, the assessee had no option, but to keep the account, in respect of each excisable product (evident from the mandate in r. 173G that it "shall keep an account-current"). The latter part of the main rule makes it clear beyond any doubt that the assessee has no choice in the obligation, and cannot remove the goods manufactured by it, unless suffi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e direct the Assessing Officer to allow the claim of expenditure of ₹ 36,87,481/- claimed under the provisions of section 43B of the Act. The ground No.3 raised by the assessee is thus allowed. 43. Following the abovesaid parity of reasoning we direct the Assessing Officer to allow expenditure of ₹ 32,62,786/-. Further the second plea of the assessee in respect of the addition of ₹ 1,70,88,165/- is not warranted. However, the Assessing Officer shall verify the claim of the assessee in this regard and after affording reasonable opportunity of hearing shall work out the consequential effect. The ground No.4 raised by the assessee is allowed and ground No.4.1 is allowed for statistical purposes.' 21. Since no distinguishing facts were brought to our notice during the course of hearing, respectfully following the order of the Coordinate Bench of the Tribunal, we also send back the issue to the file of the Assessing Officer to decide it as per the direction of the I.T.A.T. in earlier year. 22. The ground No.4 raised by the assessee reads as under : "4. That the Assessing Officer erred on facts and in law in disallowing market research expenses of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year 2008-09 i.e. the preceding year, we find the issue has been discussed as under : "31. We find that similar issue arose before the Tribunal in assessment year 2007-08 and the Tribunal vide paras 26 to 29 observed as under: 26. The next set of grounds of appeal are ground Nos.2.14 to 2.16 wherein the assessee has raised the issue that the expenditure relating to market research service charges paid to selling agents and discount on sales are to be excluded from the alleged AMP expenditure as being not relatable to advertisement and marketing expenditure. The claim of the learned A.R. for the assessee is that the said issue is also covered by the decision of Special Bench of the Tribunal (majority view) in M/s L.G. Electronics India (P) Ltd. v. ACIT (supra) vide paras 18.5 and 18.6 of the decision. The relevant paras are as under: 18.5 We do not find any force in the contention of the learned DR made in this regard. The logic in the exercise of finding out the AMP expenses towards creation of marketing intangibles for the foreign AE starts with the expenses which are otherwise in the nature of advertisement, marketing and promotion. If an expenditure itself is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernational transaction. In view thereof, we direct the Assessing Officer to exclude the expenses incurred by the assessee in connection with the sales totalling ₹ 5500.86 lakh as the same do not fall within the ambit of AMP expenses and hence not to be considered for computing the cost/value of international transaction. The assessee vide ground No.4 had raised the issue against disallowance of consumer market research expenses of ₹ 567.49 lakh. In view of our decision in allowing the claim of the assessee being relatable to sales promotion expenses, this ground of appeal is thus allowed. The ground Nos.2.14 to 2.16 and ground No.4 are thus allowed. 32. The issue before us is identical to the issue arising before the Tribunal in earlier year and following the same parity of reasoning we direct the Assessing Officer to exclude the following expenditure as the same do not fall within the AMP expenditure and thus these are not to be considered for computing the cost/value of international transactions. The expenditure are as under: Nature Amount (Rs.Lacs) Amount (Rs.Lakh) Market Research Sales Promotion ₹ 969.16 (Rs.4460.21 - ₹ 1167.35) ₹ 3292.86 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions in the books of account as required under AS-15 on an ongoing basis. He was of the view that the actuary has calculated/estimated liability of the company towards post-retirement medical assistance to the retired employees over a period of time to comply with the revised AS-15. This provision has been made by debiting the general reserves of company from the point of view of transparent accounting practices for the benefit of the shareholders of the company and its other stakeholders. As per the Assessing Officer, this liability is totally unascertained and cannot be allowed to be set off against the taxable income of the assessee. In this way, the Assessing Officer proposed to disallow the said expenditure. 31. Before the DRP detailed submissions were made by the assessee. However, rejecting the objection raised by the assessee, the DRP held that since the issue has also come up earlier for the consideration of the DRP in assessee's case for assessment years 2007-08 and 2008-09 and the same was rejected by the DRP for the reasons that the element of uncertainty in respect of this liability is very high, thus following the direction of the DRP for assessment years 2007- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment order under which the Institute issued revised accounting standard for accounting the employees' medical benefit post-retirement. As per the assessee, the ICAI made the said Accounting Standard to be followed compulsorily w.e.f. 1.4.2006 i.e. assessment year 2007-08 i.e. the year under appeal. The gist of the revised Accounting Standard-15 is reproduced at pages 29 to 31 of the assessment order. However, the copy of the Accounting Standard-15 is enclosed at pages 836 to 902 of the Paper Book. The objective of the revised Accounting Standard-15 is to prescribe the accounting and disclosure for employee benefits. The Standard requires an enterprise to recognize: (a) Allowability when an employee has provided service in exchange for employee benefits to be paid in the future; and (b) An expenses when the enterprise consumes the economic benefit arising from service provided by an employee in exchange for employee benefits. 52. The scope of the said Accounting Standard-15 was mandatorily to be applied by an employer in accounting for all employee benefits, except employee share-based payment. Clause-4 defines employee benefits include: (a) Short-term employee benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c) A reliable estimate can be made of the amount of the obligation. 55. Clause 137 of Revised AS-15 provides that termination benefits are recognized as an expenses immediately. Under clause 138 it is provided that where an enterprise recognizes termination benefits, the enterprise may also have to account for a curtailment of retirement benefits or other employee benefits. 56. The assessee admittedly followed the revised Accounting Standard-15. In view thereof the assessee obtained an actuarial valuation certificate which reads as under: ACTUARIAL VALUATION CERTIFICATE - MEDICAL Ref:Actval/m/gsk_0307 GlaxoSmithKline Consumer Healthcare Limited. Re: Actuarial Valuation - Post-Retirement Medical Assistance as on 31.03.2007. The actuarial value of liability of the Company towards post-retirement medical assistance to the retired/retiring officers as per the Company's Scheme upto the date of valuation mentioned above has been calculated and the results of valuation are as given below: 1. BASIS: (a) Discount Rate - 8.00 % p.a. (b) Mortality - L.I.C. (1994-96) Ult. (c) Rate of Withdrawal - As applicable to the group. (d) Projected Unit Credit Method adopted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able as deduction. (c) Under the mercantile system of accounting, deduction of expenditure is allowable in the year in which liability is quantified and accrued, notwithstanding that the same has to be discharged at a later date. (d) Further, the aforesaid liability incurred towards medical benefits was only an incremental liability after considering/reducing the amount of medical insurance premium paid to insurance companies. The said liability incurred, thus, did not include the amount of premium paid for which deduction was already claimed. (e) The deduction was claimed because of change in the method of accounting and where there is a bona fide change in the method of accounting, the claims on the basis of the changed method, even if pertaining to earlier years, would be allowable deduction in the year of change, more so since the liability in regard thereto has not been claimed deduction in such earlier years. (f) Since the liability on account of medical assistance pertaining to services rendered in the earlier years has been accounted or claimed in the relevant year for the first time, in view of the bona fide change in the method of accounting (pursuant to mandatory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 53 (SC), the appellant-company estimated its liability under two gratuity schemes framed by the company and the amount of liability was deducted from the gross receipts in the profit and loss account. The company had worked out on an actuarial valuation its estimated liability and made provision for such liability not all at once but spread over a number of years. The practice followed by the company was that every year the company worked out the additional liability incurred by it on the employees putting in every additional year of service. The gratuity was payable on the termination of an employee's service either due to retirement, death or termination of service - the exact time of occurrence of the latter two events being not determinable with exactitude before hand. A few principles were laid down by this court, the relevant of which for our purpose are extracted and reproduced as under : (i) For an assessee maintaining his accounts on the mercantile system, a liability already accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of his business, regard being had to the accepted principles of commerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the post-retirement benefit due to its employees, in terms of the scheme of employment and also in terms of the revised/change in Accounting Standard-15 issued by ICAI which was to be followed during the year, is an allowable deduction in the hands of the assessee. The said claim being based on the valuation of the actuary is both scientific and one of the recognized method of accounting and quantifying the said post-retiremental medical benefits. In such cases though actual and exact quantification may not be possible, however, the liability so recognized by the assessee could not be said to be unascertained and contingent. The assessee having followed the mercantile system of accounting was compulsorily required to account for the said post-retirement medical benefits as the same was quantified and had accrued during the year. The claim of the assessee was thus allowable irrespective of the fact that the assessee had made a provision in the books of account but had claimed the said deduction in the computation of income. It is well settled proposition that the way in which entries are made by the assessee in its books of account is not determinative of the question whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticular year to be made in subsequent year. In view of this, we find the order of CIT (A) in ITA No.149/Del/2012 in order. We set aside the order of CIT (A) in ITA No.4921/Del/2010. For doing so, we also get support from the following decisions of Supreme Court and Hon'ble Delhi High Court. The 5.1 Supreme Court in the case of Metal Box Company of India Ltd. v. Their Workmen - 73 ITR 53 has held as under :- "Contingent liabilities discounted and valued as necessary, can be taken into account as trading expenses if they are sufficiently certain to be capable of valuation and if profits cannot be properly estimated without taking them into consideration. An estimated liability under a scheme of gratuity, if property ascertainable and its present value is discounted, is deductible from the gross receipts while preparing the profit and loss account. This is recognised in trade circles and there is nothing in the Bonus Act which prohibits such a practice. Such a provision provides for a known liability of which the amount can be determined with substantial accuracy. It cannot, therefore, be termed a "reserve". Therefore, the estimated liability for the year on accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning the provision-made by the assessee towards gratuity under the Income-tax Act, 1961. The Supreme Court, after noticing the judgment in Metal Box Company (supra), crystallized its analysis at page 599 and made the following observations:- "It would thus be apparent from the analysis aforesaid that the position till the provisions of section 40A(7) were inserted in the Act in 1973 was as follows:- 1 xxxx 2 xxxx 3 xxxx 4 xxxx 5. Provision made in the profit and loss account for the estimated present value of the contingent liability properly ascertained and discounted on an accrued basis as falling on the assessee in the year of account could be deductible either under Section 28 or section 37 of the Act." ITA 873/2008 & 1156/2008 Page 6 of 25 7. The Division Bench of this Court, while considering deductibility of a provision for warranties made by an assessee, which dealt in computers in the case of CIT v. Hewlett Packard India (P) Ltd, by its judgment passed in Appeal No. ITA 486/2006 dated 31.03.2008, upheld the deductibility of the provision for warranty on the ground that it was made on the basis of actuarial valuation being covered by the principle set out in Met ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be capital in nature simply on the ground that similar issue has been raised by the Revenue in the case of Swaraj Engines Ltd.309 ITR 443 (SC), wherein the matter has been remitted back to the Punjab & Haryana High Court. Upon filing of objection before the DRP in assessment year 2008-09, the DRP had directed the Assessing Officer to redetermine the issue of allowability of royalty after verification of facts with reference to the agreement entered into by the assessee with M/s Glaxo Smithkline Asia Pvt. Ltd. in view of the direction of the Supreme Court in the case of Swaraj Engines Ltd. (supra). Considering the reply of the assessee, holding that the Department is already before the Punjab & Haryana High Court in the case of Swaraj Engines Ltd. (supra) and issue is pending for decision before the Hon'ble Court, hence the claim of the assessee to treat this expenditure as revenue cannot be entertained. In this way, an expenditure of ₹ 6167.79 lakh was proposed to be treated as capital expenditure and depreciation was proposed to be accordingly allowed. 38. Before the DRP also, the detailed submissions were made by the assessee. However, the DRP confirmed the action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... royalty paid by the assessee is in the nature of capital or revenue expenditure. The Assessing Officer and DRP had considered the allowability of the expenditure in view of the judgment of the Supreme Court in the case of Swaraj Engines Ltd. (supra) wherein the issue was the applicability of section 35AB of the Act in the context of royalty paid as percentage of the net sale price being revenue and capital in nature. The Supreme Court held that after insertion of section 35AB of the Act, providing for allowance of expenditure on know- how as revenue or capital, would be a substantial question of law and the issue was set aside to the Hon'ble High Court for fresh consideration. The appeal before the Supreme Court related to the assessment year as on 30.12.1991. However, the provisions of section 35AB of the Act were applicable till assessment year 1997-98 and are not applicable to the year under consideration i.e. the assessment year 2008-09. In view thereof, ratio laid down by the Supreme Court in the case of Swaraj Engines Ltd. (supra) is not applicable to the facts of the present case. We find no merit in the order of the Assessing Officer in this regard. 55. Now coming to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame to have been incurred for investment made in capital work in progress ('CWIP'). 7.1 That the Assessing Officer erred on facts and in law in proceeding on a factually incorrect premise that the appellant had borrowed funds and in holding/observing that the appellant failed to furnish complete details in respect of loan funds. 7.2 Without prejudice, that the Assessing Officer erred on facts and in law in not allowing depreciation (in the year of capitalization of the CWIP) on interest expenses of ₹ 2,03,16,000/- held to be capital in nature." 44. Briefly, the facts of the case are that during the year under consideration, the assessee had shown closing capital work-in-progress amounting to ₹ 1573.86 lakh and opening capital work-in-progress amounting to ₹ 1812.21. Further, it was observed by the Assessing Officer that an amount of ₹ 541.19 lacs were incurred by the assessee on account of interest expenses being interest on deposits from dealers, wholesalers, interest on cheque discounting with banks, differential interest on housing loan to employees and interest on others. The Assessing Officer observed that the value of capital work-in- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, no disallowance on account of interest can be made. Secondly, it was submitted that all the heads of interest expenditure on account of which the said addition has been computed pertain to the regular business of the assessee and has been made on account of business expediency only. Therefore, no such disallowance can be made. 47. Further, it was submitted that similar disallowance has been deleted by the Chandigarh Bench of the Tribunal in assessee's own case for assessment year 2008-09. 48. The learned D.R. relied upon on the orders of the Assessing Officer as well as the DRP. 49. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. On perusal of the order of the Tribunal is assessee's own case for assessment year 2008-09 on similar disallowance being made by the I.T.A.T., deleted the same in following words : "62. We have heard the rival contentions and perused the record. The assessee during the year under consideration had made investment in fixed assets which were reflected as CWIP in its Balance Sheet. The closing balance as on 31.3.2008 was & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he absence of any borrowings made by the assessee for running the business, we find no merit in the disallowance made by the Assessing Officer under the proviso to section 36(1)(iii) of the Act. The basic condition for applying the provisions of proviso to section 36(1)(iii) of the Act is that money should have been borrowed for the purposes of investment in capital assets on which interest had been paid by the assessee, then such interest as relatable to the investment in capital assets is to be disallowed. However, in the absence of any borrowings made by the assessee, we find no merit in the disallowance made by the Assessing Officer under the proviso to section 36(1)(iii) of the Act. Accordingly, we delete the addition of ₹ 154.76 lakh. The ground Nos.7 to 7.2 raised by the assessee are thus allowed." 50. From the perusal of the above order, we see that exactly the same circumstances are in the current year also as the head of interest expenditure are identical in both the years and no distinguishing facts were brought to our notice, respectfully following the order of the Coordinate Bench of the Tribunal, the claim of the assessee is allowed. The ground of appeal N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the effect that Rule 8D of the Income Tax Rules cannot be applied mechanically. Further, it was reiterated that the assessee is a debt free company and in the business of any borrowings made by the assessee, no disallowance under section 14A of the Act read with Rule 8D can be made on account of interest expenditure. Insofar as the disallowance of administration expenses is concerned, it was submitted that no part of the expenditure has actually incurred for earning dividend income. Still the assessee has made suo motu disallowance of ₹ 6,38,504/- on a scientific and rational basis to cover the expenditure. Further the Assessing Officer has not been able to pinpoint any error on the said suo motu disallowance made by the assessee. Certain error were also pointed out in the computation made by the Assessing Officer under Rule 8D of the income Tax Rules. Reliance was placed on a number of judicial pronouncements by various High Courts and various Benches of the I.T.A.T. on all the issues raised before us. Our attention was also invited to the order of the Chandigarh Bench of the Tribunal in assessee's own case for assessment year 2008-09, wherein the Tribunal has held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in view thereof the provisions of Rule 8D of Income Tax Rules are squarely applicable and disallowance is to be computed in accordance with the said provisions of Rule 8D of Income Tax Rules for working out disallowance under section 14A of the Act. Accordingly, we uphold the order of the Assessing Officer in this regard. However, the assessee is entitled to the set off of the amount surrendered at ₹ 6,06,977/-. In view thereof, ground Nos.8 to 8.4 raised by the assessee are partly allowed." It is seen from the perusal of the balance sheet that no new investments have been made by the assessee during the year as total investments have reduced from 33,221.23 lakh on 31.3.2008 to ₹ 0.05 lakh as on 31.3.2009. Further, in the order of the earlier years, I.T.A.T. has held that no interest bearing funds are used for the purposes of investments, no disallowance on account of interest expenditure can be made under section 14A of the Act. 57. We direct the Assessing Officer to delete the disallowance on account of interest expenditure made under Rule 8D of the Income Tax and as regards the administration expenses, we direct the Assessing Officer to set off the suo motu di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to services rendered until the end of the relevant year, which got accrued during such year, the same is allowable as business deduction in accordance with the mercantile system of accounting. Further, it was also submitted that in assessment year 2005-06, it was the first year of its incentive plan and in all the subsequent assessment years completed w.e.f. assessment years 2006-07 to 2008-09, the said issue was discussed during the assessment proceedings but no disallowance was made by the Assessing Officer. Rejecting the contention of the assessee, the Assessing Officer formed a view that in respect of an amount payable to the employee relatable to the services rendered by him until the end of the relevant year, the assessee has made a provision for proportionate liability. However, the amount is actually payable to the employee as on the date of exercise of option i.e. after expiry of three years from the date of grant of the option, that too on a condition that the employee retains himself in service till such date. Therefore, the liability in case of an employee can never be ascertained reasonably as any employee can leave at any time before the scheme matures. It is impro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the exact amount of discount is quantified only at the time of exercising the options. Further, it has been held in the same order that incurring of liability and the resultant deduction cannot be marred by mere reason of some difficulty in proper quantification of such liability at that stage. The very point of incurring the liability enables the assessee to claim deduction under mercantile system of accounting. The reliance was placed on the judgment of Hon'ble Madras High Court in the case of CIT Vs. M/s PVP Ventures Ltd., 211 Taxman 554 and that of the Chennai Bench of the Tribunal in the case of SSI Ltd. Vs. DCIT, 85 TJ 1049. In view of the above, it was prayed that the disallowance made by the Assessing Officer be deleted. 58.d The learned D.R. relied upon the orders of the lower authorities. 59. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. This is an undisputed fact that the assessee has created liability in respect of long-term incentives plan of ₹ 158.96 lakh during the year. It is also a fact that the assessee has adopted a standard method to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e revenue about the contingent liability arising on account of the options lapsing during the vesting period or the employees not choosing to exercise the option, it was found that normally it was provided in the schemes of ESOP that the vested options that lapse due to non-exercise and/or unvested options that get cancelled due to resignation of the employees or otherwise, would be available for grant at a future date or would be available for being re-granted at a future date. If it is considered at micro level qua each individual employee, it may sound contingent, but if it is viewed at macro level qua the group of employees as a whole, it loses the tag of 'contingent' because such lapsing options are up for grabs to the other eligible employees. In any case, if some of the options remain unvested or are not exercised, the discount hitherto claimed as deduction is required to be reversed and offered for taxation in such later year. Therefore, the discount in relation to options vesting during the year cannot be held as a contingent liability. Provisions to section 115WB contemplates that the discount on premium under ESOP as a benefit provided by the employer to its empl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 65. The ground No.12 is consequential in nature, hence needs not adjudication. 66. The appeal of the assessee in ITA No.290/Chd/2014 is partly allowed. ITA No.208/Chd/2015 : 67. The ground No.1 is general, therefore needs no adjudication. 68. The ground No.2 raised by the assessee in this appeal reads as under : "2. That the Assessing Officer erred on facts and in law in making addition of ₹ 218.47.61.575 on account of arm's length price of alleged international transactions resulting from advertisement, marketing and sales promotion expenses ('AMP expenses') incurred by the appellant on the basis of the order passed by the TPO under section 92CA(3) of the Act." 69. It is relevant to observe here that the issue in this ground is similar to the issue in ground No.2 raised by the assessee in ITA No.290/Chd/2014 and the findings given in ITA No.290/Chd/2014 shall apply to this case also with equal force. 70. The ground of appeal No.3 raised by the assessee reads as under : "3. That the Assessing Officer erred on facts and in law in disallowing consumer market research expenses of ₹ 19,39,45,000/- under section 37(1) of the Act, allegi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue in this ground is similar to the issue in ground No.6 raised by the assessee in ITA No.290/Chd/2014 and the findings given in ITA No.290/Chd/2014 shall apply to this case also with equal force. 78. The ground of appeal No.7 raised by the assessee reads as under : "7. That the Assessing Officer erred on facts and in law in disallowing interest of ₹ 3,08,24,000/- as capital expenditure in terms of proviso to section 36(l)(iii) of the Act alleging the same to have been incurred for investment made in capital work-in-progress ('CWIP'). 7.1 That the Assessing Officer erred in proceeding on a factually incorrect premise that the appellant had borrowed funds which had been utilized for making investment in CWIP, without appreciating that the appellant had no borrowed funds at all. 7.2 Without prejudice, that the Assessing Officer erred on facts and in law in not allowing depreciation (in the year of capitalization of the CWIP) on interest expenses of ₹ 308,24,000/- held to be capital in nature." 79. It is relevant to observe here that the issue in this ground is similar to the issue in ground No.7 raised by the assessee in ITA No.290/Chd/2014 an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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