9911796707
TMI Blog2013 (6) TMI 909X X X X Extracts X X X X X X X X Extracts X X X X ..... d expenditure after verifying as to whether the department has accepted the said decision of the Tribunal. On verification, the A.O. found that no appeal was filed by the department against the order of the Tribunal passed in the case of Rallis India Ltd. giving relief to the assessee on the issue of brand equity subscription and accordingly he allowed similar subscription paid by Tata Steel Ltd. in the final assessment completed u/s 143(3) r.w.s. 144-C of the Act vide order dtd. 27-11-2010. It is thus clear that this issue is squarely covered in favour of the assessee by the decision of the co-ordinate Bench of this Tribunal in the case of Rallis India Ltd. which has also been accepted by the department. Respectfully following the said decision of the Tribunal, we delete the disallowance made by the A.O. on account of subscription paid by the assessee to Tata Sons Ltd. towards brand equity and promotion scheme and allow ground No. 1 of assessee s appeal. Disallowance u/s 14-A - The disallowance on account of interest was worked out by the assessee at 35% of the total interest adopting the ratio of tax free investment to total investment and this basis was accepted by the TPO in pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 2 of assessee s appeal. Addition by way of transfer pricing adjustment in respect of assesse s international transactions pertaining to reimbursement of rework charges to its Associated Enterprise - We find merit in this contention of the ld. counsel for the assessee. The same, however, is only an alternative contention and what is relevant to be seen first is the direct evidence to prove that the amount in question was reimbursed by the assessee to the Associated Enterprise on cost to cost basis and the invoices raised by the third party for repair work is a vital evidence in this regard which can clearly establish the arm s length price of the repair work done. We, therefore, restore this issue to the file of the A.O. for deciding the same afresh in the light of evidence to be produced by the assessee in support of its claim on this issue as discussed above. If the assessee fails to produce such evidence, the A.O. is directed to consider the alternate contention of the assessee on this issue in accordance with law. Ground No. 3 of assessee s appeal is accordingly treated as allowed for statistical purpose. We admit the additional ground filed by the assessee and direct the A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... challenge from international brand names, post liberalization. • The assessee company has derived huge benefits in the form of increase sales and also other operational efficiencies. • In the past assessment years the similar payment has been allowed as deduction. The Assessee relied on the decision in the case of Radhasoami Satsang Vs. CIT (1992)193 ITR 321(SC)". 4. The A.O. did not find merit in the above submissions made by the assessee on this issue for the following reasons given in the assessment order:- "The assessee company was incorporated on 17.10.1995 with the name Tata Autocomp Systems Ltd. Therefore, the assessee company had been using the name TATA since then. It is not a case where prior permission was required to use the "TATA" name at the time of incorporation. The aforesaid arrangement of payment of subscription towards brand equity was entered only on 04.06.2001 i.e. more than five years after the incorporation. By using TATA word in its name since then itself gives the assessee right to use TATA brand. Further, it is seen that the major holding (74%) of the assessee company is with Tata Industries Ltd. Tata Motors Ltd, and Tata Sons Ltd. Al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... communication media (e.g. TATA Website) etc. printing and publishing of promotional material and such other activities as in the opinion of the Board of Directors of the Proprietor Company, will enhance the TATA Brand Equity and correspondingly benefit the business of the Subscriber. c) To co-ordinate major campaigns involving the promotion and development of the Business Name Marks and Marketing Indica. d) to engage the services of specialist agencies both National and International as the need may be to energise and enhance the Overall TATA Brand Equity which eventually could result in a greater market share for the products and services of the Subscriber and help in the preservation and vindication of the trust and confidence reposed by customers, business associates, stockholders and the society in general. e) To engage profession consultants for conducting industry/organizational studies/research for the formulation of Group business strategies and policies that would assist the subscribing companies to emerge as business leaders in the evolving markets. f) For the attainment of the overall objectives of the TATA Brand Equity & Business Promotion Scheme and interactin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness contacts and availing the services of the domestic and overseas offices of the Proprietor and the Group Companies. p) To institutionalise mechanisms to share and propagate best management practices amongst the Subscribing companies. q) To manage and supervise the implementation of the Scheme and ensure compliance with the terms of this Agreement and the Code". The ld. counsel for the assessee has also invited our attention to the relevant portion of the agreement dtd 4th June, 2001 at page 218 containing subscription clause whereby the assessee was obliged to pay the subscription at the stipulated rate to Tata Sons Ltd. for the services rendered in connection with maintaining and promoting the entire brand and image of TATA group. 6. As further submitted by the ld. counsel for the assessee, M/s Rallis India Ltd., another company belonging to TATA group had also entered into a similar agreement with M/s Tata Sons and the subscription paid as per the said agreement towards TATA brand equity and business promotion scheme was disallowed by the A.O. The ld. CIT(A), however, allowed the same and the Tribunal vide its order dtd. 30-8-2011 passed in ITA No. 5701/Mum/2008 for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal, we delete the disallowance made by the A.O. on account of subscription paid by the assessee to Tata Sons Ltd. towards brand equity and promotion scheme and allow ground No. 1 of assessee's appeal. 7. The issue raised in ground No. 2 relates to the disallowance of ₹ 1.06 crores made by the A.O. u/s 14-A read with rule 8-D of the Income Tax Rules, 1962. 8. During the year under consideration, the assessee had received dividend income of ₹ 16,83,27,131/- which was claimed to be exempt from tax. As per the revised return filed by the assessee, the disallowance of ₹ 1,34,95,120/- was made u/s 14-A of the Act on account of expenses attributable to the said exempt income. The said disallowance was worked out by the assessee on account of interest at ₹ 1,28,72,969/- being 35% of the total interest which, according to the assessee, was the ratio between the investment fetching tax free income and total investment. The balance disallowance of ₹ 6,22,151/- was made on account of salary paid to a treasury person who, according to the assessee, was looking after the activity of earning tax free income. As regards the other expenses, it was contended on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 1,34,95,120/-, a further disallowance of ₹ 1,59,25,273/- u/s 14A was proposed by the assessee in the draft assessment order. The said disallowance was objected by the assessee before the DRP. The DRP found the action of the A.O. in making the disallowance u/s 14-A r.w.r. 8-D to be proper. Before the DRP, the assessee furnished the working of disallowance to be made u/s 14-A by applying Rule 8-D pointing out certain mistakes committed by the A.O. while computing the said disallowance. As per the direction of the DRP, the A.O. verified the said working and found that the correct disallowance to be made u/s 14-A as per Rule 8-D was ₹ 1.07 crores on account of interest expenditure and ₹ 1.34 crores on account of other administrative expenses. Accordingly, he restricted the disallowance u/s 14-A of the Act to ₹ 1,06,04,880/-in the final assessment. 10. The ld. counsel for the assessee submitted that the disallowance u/s 14-A of the Act offered by the assessee was worked out on reasonable basis and the A.O. had also accepted the same in principle in so far as it was related to interest expenditure. He submitted that the A.O., however, worked out the rati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions and also perused the relevant material available on record. In the revised return filed for the year under consideration, the disallowance u/s 14-A of the Act was offered by the assessee on account of interest amounting to ₹ 1,28,72,969/- and on account of other expenses at ₹ 6,22,151/-. The disallowance on account of interest was worked out by the assessee at 35% of the total interest adopting the ratio of tax free investment to total investment and this basis was accepted by the TPO in principle. As per the working given by the TPO, the ratio between tax free investment and total investment, however, was 38.47% and not 35% as taken by the assessee and accordingly the disallowance u/s 14-A of the Act on account of interest was increased by him to ₹ 1,41,95,393/- in the draft assessment order. At the time of hearing before us, the ld. Counsel for the assessee has made an attempt to show that the ratio of 38.47% worked out by the TPO is not correct and the same actually is less than 35%. It is, however, observed that in the final assessment order, the disallowance on account of interest u/r 8-D(2)(ii) was made by the assessee only to the extent of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , therefore, of the view that the disallowance u/s 14-A as computed by the A.O. is quite reasonable and confirming the same, we dismiss ground No. 2 of assessee's appeal. 14. The issue raised in ground No. 3 relates to the addition of ₹ 2.61 crores made by the A.O. by way of transfer pricing adjustment in respect of assesse's international transactions pertaining to reimbursement of rework charges to its Associated Enterprise. 15. During the year under consideration, the assessee company had made a payment of ₹ 2,67,90,359/- to its associate concern TKT towards reimbursement of rework charges. This international transaction of the assessee company with its AE, inter alia, was referred by the A.O. to the TPO for determining its arm's length price. Before the TPO, it was explained by the assessee that it had entered into a business arrangement with Ford for providing components as per their specifications. It was submitted that sometime when the goods were shipped to Ford or were enroute, Ford would make changes in design specifications of the components being supplied by the assessee. It was submitted that it was imperative for the assessee to make necessary changes an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and leaving of personnel of the Company has got no relevant to the same. 5. Since the assessee could not establish by evidence that goods were defective and services were carried out, it will be presumed that no service of 'rework' was received by the assessee. 6. In view of print no 5 above, no person in uncontrolled situation will make payment". In view of the reasons given above, the arm's length price of the reimbursement of rework charges was taken by the TPO as "nil" and the TP adjustment was worked out by him at ₹ 2,67,90,359/- which was proposed to be added in the draft assessment order. The assessee objected to the said addition before the DRP but could produce the evidence in respect of the reimbursement of rework charges before the DRP only to the extent of ₹ 6,42,640/-. The DRP accordingly directed the A.O. to reduce the TP adjustment on this issue by ₹ 6,42,640/- and thus finally addition of ₹ 2,61,47,719/- was made by the A.O. to the total income of the assessee on this issue. 17. We have heard the arguments of both the sides on this issue and also perused the relevant material placed on record. As submitted by the ld. Counsel for the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be taken as "nil" and the same has to be determined on the basis of the relevant past and future data. We find merit in this contention of the ld. counsel for the assessee. The same, however, is only an alternative contention and what is relevant to be seen first is the direct evidence to prove that the amount in question was reimbursed by the assessee to the Associated Enterprise on cost to cost basis and the invoices raised by the third party for repair work is a vital evidence in this regard which can clearly establish the arm's length price of the repair work done. We, therefore, restore this issue to the file of the A.O. for deciding the same afresh in the light of evidence to be produced by the assessee in support of its claim on this issue as discussed above. If the assessee fails to produce such evidence, the A.O. is directed to consider the alternate contention of the assessee on this issue in accordance with law. Ground No. 3 of assessee's appeal is accordingly treated as allowed for statistical purpose. 18. During the course of appellate proceedings before the Tribunal, the assessee has filed an additional ground seeking a direction to the A.O. to give credit for ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
