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TMI Blog2023 (7) TMI 1140X X X X Extracts X X X X X X X X Extracts X X X X ..... . From the above, it is very clear that the assessee needs to make payment of royalty, net applicable taxes and thereby liability towards TDS is borne by the assessee. Since, the royalty expenditure is considered as revenue in nature, consequent TDS on said royalty is also revenue in nature which needs to be allowed as deduction. Therefore, we are of the considered opinion that the A.O is erred in disallowing TDS on royalty u/s. 40(a)(ii) of the Act because, it is neither a tax nor duty levied on profits of the assessee, but it is an expenditure incurred by the assessee for payment of royalty to its AE. Therefore, we direct the A.O to delete the additions made towards disallowance of royalty u/s. 40(a)(ii). Disallowance on R D cess paid to RBI - assessee has paid 5% cess on total royalty paid to its AE and remitted the same to RB - A.O made addition on the ground that royalty expenditure is capital in nature and not revenue and consequently cess paid on said royalty expenditure and remitted to RBI cannot be allowed as a deduction - HELD THAT:- We find that the Tribunal in assessee s own case for earlier years, held that royalty payment made to its AE M/s. Chevron Oronite Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12.2017 and pertains to Assessment Years (A.Ys) 2011-12, 2012-13, 2013-14 2014-15. Since, facts are identical and issues are common, for the sake of convenience, these cross appeals filed by the assessee as well the Revenue are being heard together and are being disposed off, by this consolidated order. 2. The assessee, as well as the Revenue filed grounds of cross appeals in their respective appeals filed for all A.Ys. Therefore, for the sake of brevity, grounds of appeal filed by the assessee in IT(TP)A No.9/Chny/2018 for A.Y 2011-12 and grounds of appeal filed by the Revenue in ITA No.1034/Chny/2018 for A.Y 2011-12 are reproduced as under: IT(TP)A No.9/Chny/2018 for A.Y 2011-12: The order of the Hon'ble Commissioner of Income Tax (Appeal) is against facts and circumstances of the case. Both the CIT (A) and the Assessing Officer has failed to appreciate the various submissions made in the current perspective. 1. Download Adjustment of Rs. 5,59,73,812/-: The Appellant has adopted different methods for each type of transactions and the same has been already produced before the TPO and Assessing Officer. However, TPO has ignored the method adopt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intangible assets as per the provisions of section 32(1)(0) of the Act and the said expenditure is to be treated only as capital expenditure. 3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the Order of the learned Commissioner of Income Tax (Appeals) be set aside and that of the Assessing Officer be restored. 3. The brief facts of the case extracted from IT(TP)A No.9/Chny/2018 for A.Y 2011-12 are that the assessee M/s. Indian Additives Ltd. (IAL) is engaged in the business of manufacturing and sale of lubricant oil additives for the Indian market. IAL was formed as 60:40 joint venture between Chevron Oronite Company LLC, UK (COCL) and Chevron Oronite Japan Ltd. Japan (COJL). The assessee had filed its return of income for A.Y 2011-12 to 2014-15 u/s. 139(1) of the Income Tax Act, 1961 (hereinafter referred as the Act ). The case was selected for scrutiny and during the course of assessment proceedings, a reference was made to the Transfer Pricing Officer (TPO) to determine Arms Length Price (ALP) of international transactions of the assessee with its associated enterprises (AE) as reported in Form-3CD, filed for the relevant a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redecessor TP order for earlier assessment years, observed that similar claim made by the assessee in last year was not entertained and the matter is pending before the Ld. CIT(A) for adjudication. The scenario for the current year was also not different. Therefore, rejected the arguments of the assessee for economic adjustments and computed downward adjustment by considering Lubrizol India Pvt. Ltd. operating margin to the margin of the assessee and made TP adjustment of Rs. 27,35,30,000/-. 4. Pursuant to transfer pricing order of the TPO, the A.O passed draft assessment order u/s. 143(3) r.w.s 144C(1) of the Act on 16.03.2015 and proposed TP adjustment as suggested by the TPO. The assessee vide letter dated 15.04.2015 informed the A.O that the assessee wish to prefer an appeal before the Ld. CIT(A) against the draft assessment order. Therefore, requested the A.O to pass final assessment order. Thereafter, the A.O passed final assessment order u/s. 143(3) r.w.s. 144C(13) of the Act, and made additions towards TP adjustment as suggested by the TPO. The A.O had also made additions towards disallowance u/s. 40(a)(ii) of the Act towards TDS on royalty, on the ground that the TDS is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the order of Ld. CIT(A) submitted that the assessee could not provide any evidences as to why necessary adjustment is required to be given in respect of price of Lubrizol oil and tolling fee for zinc. The assessee is also unable to provide necessary details why adjustment is required to be provided for cost of freight on sales. However, he fairly agreed that in the earlier years, Tribunal has set aside the issue to the file of A.O and TPO for fresh consideration and thus, the matter may be decided in accordance with law. 8. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We find that an identical issue has been considered by the Tribunal in assessee s own case for A.Y 2009-10 in ITA No.2579/Mds/2016, where the Tribunal after considering relevant facts has set aside the issue to the file of the A.O for reconsideration and give proper adjustment on account of raw-material cost of Lubrizol and mineral oil and also regarding tolling fee for zinc. The relevant findings of the Tribunal order are as under: 6. We have heard both the parties and perused the material on record. According to ld.A.R, Lubrizol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue in light of directions given by the Tribunal for A.Y 2009-10 and decide the issue for these assessment years 2011-12, 2012-13 2013-14 also. 10. The next issue that came up for our consideration from assessee appeal for A.Ys 2011-12 2012-13 is disallowance of TDS on running royalty u/s. 40(a)(ii) of the Act. The A.O has disallowed a sum of Rs. 1,08,43,349/- for A.Y 2011-12 towards income tax paid on royalty payment made to AE on the ground that, as per the provisions of Section 40(a)(ii) of the Act any sum on account of any rate or tax levied on the profits and gains of any business or profession or assessed at a proportion of, or otherwise should not be allowed as expenditure. It was the argument of the assessee before the A.O that, out of sum of Rs. 1,08,43,349/- a sum of Rs. 75,05,019/- is on account of TDS on royalty paid to AE and said TDS has been incurred by the assessee as per terms of agreement with its AE. Therefore, when royalty has been treated as an expenditure, consequent TDS liability incurred by the assessee for grossing up purpose also needs to be allowed as an expenditure. 11. The Ld. counsel for the assessee submitted that, as per the agreement wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is revenue in nature and allowable as deduction. Since, royalty expenditure has been considered to be revenue in nature, consequent grossing up of expenditure towards TDS deductible on said royalty is also revenue in nature and said expenditure is deductible u/s. 37(1) of the Act. We further noted that as per clause (4)(i)(c) of agreement between assessee and its AE dated 31.03.2009, the royalty payment to AE is net of applicable Indian income tax (which shall be borne by Indian Additives Ltd.). From the above, it is very clear that the assessee needs to make payment of royalty, net applicable taxes and thereby liability towards TDS is borne by the assessee. Since, the royalty expenditure is considered as revenue in nature, consequent TDS on said royalty is also revenue in nature which needs to be allowed as deduction. Therefore, we are of the considered opinion that the A.O is erred in disallowing TDS on royalty u/s. 40(a)(ii) of the Act because, it is neither a tax nor duty levied on profits of the assessee, but it is an expenditure incurred by the assessee for payment of royalty to its AE. Therefore, we direct the A.O to delete the additions made towards disallowance of royalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y 2012-13 is interest on unsecured loan. During the course of assessment proceedings, the A.O noticed that the assessee had claimed an amount of Rs. 33.83 Lakhs, towards interest on shortfall of advance tax under the head Finance Cost in the profit and loss account. However, in the computation, the assessee has added back a sum of Rs. 30.82 Lakhs, but not entire amount. On being questioned, the assessee stated that shortfall for advance tax is only Rs. 30.82 Lacs and the remaining balance of Rs. 3.1 Lakh pertains to interest on unsecured loan paid to HDFC Bank. However, the assessee has not filed any details. Therefore, the A.O has disallowed interest on unsecured loan amounting to Rs. 3.1 Lakh and added back to total income. 19. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We find that the assessee has claimed interest paid on unsecured loan borrowed from HDFC Bank, but could not file any necessary evidences including relevant bank statements and loan sanctioned letter to prove interest on unsecured loan debited into the profit and loss account. Therefore, we are of the considered view that there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that Ld.Assessing Officer has elaborately discussed on the agreement and treated the said payment in the nature of intangible assets and allowed depreciation. The Id. Commissioner of Income Tax (Appeals) relied on the order of the Co-ordinate Bench of this Tribunal in assessee's own case and allowed the appeal. The only contention of the Department before the Tribunal that the Revenue has not accepted the order of the Tribunal and an appeal has already been fled in Hon'ble High court of Madras and the same is pending. This Tribunal is of the considered opinion that mere pendency of appeal before Hon'ble High Court cannot be a reason to take a different view. So, considering the decision of Co-ordinate Bench of the Tribunal in assessee own case in ITA No.1437, 1438 1439/Mds/2012, assessment years 2003-04, 2005-06 2006-07 observed at para 4 at page 2 of his order as under: 4. We have perused the orders and heard the rival submissions. We find that a similar issue had come up before this Tribunal in Revenue's appeal for assessment years 1999-2000 to 2002-03 as also in assessment year 2004-05. In its order dated 17 June, 2011 for assessment year 2004-05 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus, this Tribunal had followed its own order for earlier assessment years on the same issue. We are, therefore, of the opinion that CIT(Appeals) was well justified in treating the royalty payments made to M/s. Chevron Oronite Company LLC USA as nothing but revenue expenditure, not resulting in, any acquisition of intangible assets We, respectfully following the Co-ordinate Bench decision, upheld the order of Commissioner of Income Tax (Appeals) and dismiss the ground of the Revenue. Respectfully following Jurisdictional ITAT's decision in appellant's own case, on this recurring issue, I direct the AO to delete the addition made on account of royalty payment pertaining to all the four assessment years under appeal. The grounds of appeal taken by the appellant on this issue are allowed. 24. In view of this matter and by following decision of decision of Co-ordinate Bench of ITAT in assessee s own case for A.Y 2010-11, we are of the considered view that there is no error in the order of Ld. CIT(A) to delete the additions made towards royalty and thus, we are inclined to uphold the findings of Ld. CIT(A) and dismiss the appeal filed by the Revenue for A.Y 2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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