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TMI Blog2024 (8) TMI 1289X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee and the expenditure is to be allowed as revenue expenditure - We find support from the ratio laid down in CIT vs Honda Siel Power Products Ltd [ 2017 (6) TMI 524 - SUPREME COURT] Thus, we are of the view that the expenditure to the extent claimed by the assessee is to be allowed in the hands of the assessee and not/the entire expenditure. Disallowance of sales tools expenses - Respectfully following the decision of the coordinate bench in assessee s own case for assessment year 2015 16 [ 2021 (5) TMI 949 - ITAT DELHI] we also hold that sales tool expenditure are revenue expenditure in nature and therefore the disallowance made by the learned assessing officer is directed to be deleted. Capitalizing a part of the royalty expenses - We must observe that neither the AO nor learned Dispute Resolution Panel have found any substantial difference in factual position relating to past assessment years and the impugned assessment year. As discussed earlier, the issue has been consistently decided in favour of the assessee in its own case in assessment years 2012-13 to 2017-18. Having gone through the facts and material available on record, we do not find any good reason to deviate fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim made in earlier assessment years in course of proceedings before the departmental authorities have been allowed by the Tribunal. Since the issue has not been factually examined by the departmental authorities, as they rejected assessee s claim summarily, we are inclined to restore the issue to the AO for de novo adjudication after giving due and reasonable opportunity of being heard to the assessee. Ground is allowed for statistical purposes. - SHRI SAKTIJIT DEY, VICE-PRESIDENT AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER For the Appellant : Sh. Harpreet Singh Ajmani, Adv., Ms. Mansavini Bajpai, Advocate For the Respondent : Sh. Rajesh Kumar, CIT-DR ORDER PER SAKTIJIT DEY, VP. Captioned appeal has been filed by the assessee challenging the final assessment order passed under section 143(3) of the Income-tax Act, 1961 pertaining to assessment year 2018-19, in pursuance to the directions of learned Dispute Resolution Panel (DRP). 2. Ground Nos. 1 2, being general grounds, do not require specific adjudication. 3. Grounds Nos. 3 to 8 relate to addition made on account of transfer pricing adjustment to the arm s length price (ALP) of export commission paid to Honda Motor Co. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment years and upheld the adjustment. 6. Before us, it is a common point between the parties that the issue is covered by the decision of coordinate Bench in assessee s own cases in past assessment years. 7. We have considered rival submissions, we find that this is a legacy issue between the parties since past assessment years. While deciding identical issue in assessee s own case in the latest order passed in assessment year 2017-18 in ITA No. 1523/Del/2022 dated 22.08.2023, the Tribunal following its earlier decision has held as under : 5. We have heard both the parties and perused the records. We find that this issue is squarely covered in favour of the assessee by the decisions of ITAT in its own case for AYs. 2015-16 2016-17 (supra). The relevant portion of ITAT order for AY 2016-17 is reproduced hereunder :- 8. Ground number 2 is with respect to the transfer pricing adjustment on account of payment of export commission of ₹ 495,348,444/- and ₹ 91,598,320/- on payment of royalty on export to associated enterprises. The learned transfer pricing officer has rejected the transfer pricing methodology adopted by the assessee for benchmarking its international trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber 2 - 5 and challenging the rejection of the transfer pricing methodology adopted by the assessee for benchmarking international transaction as well as the application of the principles of commercial expediency and need test applied by the learned transfer pricing officer and confirmed by the learned dispute resolution panel. The ground number 6 along with its sub- grounds (14 in number) is in substance challenging the determination of the arm's-length price of international transaction of export commission of ₹ 484,862,986 at Rs. nil. The ground number seven is with respect to the payment of royalty to its associated enterprise of ₹ 120,022,040/- to Honda Motors Japan for export, which is also determined by the learned transfer pricing officer at Rs. nil holding that there is a failure of benefit test. The claim of the assessee before us that both these issues are covered in favour of the assessee by the decision of the coordinate benches in assessee's own case in earlier years. We have also considered the decision of the coordinate bench in assessee's own case for AY 2013-14 and 2014-15 where, it is claimed that the issue is squarely covered in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r held that by its export activities the assessee is developing the brand of the AE and actually has carried out service to the AE. 7.4 It was also pointed out that the assessee has made export to AE's related parties in Chile, Peru and Mexico and such exports are apparently for the benefit of the AE's of parent company. 7.5 The TPO/DRP/DR were of the strong belief that the services rendered by the AE for facilitating exports were unclear. 7.6 At the very outset we have to state that the observations of the TPO/DRP that the assessee was only a contract manufacturer has been out rightly rejected by the Tribunal in assessee's own case in earlier assessment years. 7.7 The primary issue which needs to be examined is whether the assessee was benefited by making such export sales. The following chart would throw light on this issue:- 7.8 From the above chart it can be seen that the average price in respect of exports to AE's was higher than the price of the same product sold in the domestic market to non AE. 7.9 Further we find from the comparative profitability statement, the profitability derived by the assessee from export of goods at 8.91 % is significantly higher tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s but has also shown that the profitability is higher (as per the charts exhibited elsewhere). Considering the totality of the facts we have no hesitation in directing the AO/TPO to delete the impugned addition on account of export commission. 7.18 This ground is accordingly allowed. 12. Thus, we find that the both the issues of transfer pricing adjustment with respect to determination of ALP of Rs. Nil on export commission and payment of royalty are decided in favour of the assessee. The ld. DR could not show as well as the ld. AR vehemently submitted that there is no change in the facts and circumstances of the case. In view of this Ground Nos.2 to seven of the appeal are allowed. 9. Therefore, respectfully following the decision of the coordinate bench in assessee s own case for assessment year 2015 16, we allow ground number 5 of the appeal and thereby direct the learned transfer pricing officer/learned assessing officer to delete the adjustment on account of the arm s-length price of the export commission payment of ₹ 495,348, 444/ . 6. Following the aforesaid precedent, we allow this ground and thereby direct the TPO/AO to delete the adjustment on account of ALP of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the coordinate bench in case of the assessee in ITA number 7463 and 7464/del/2018 for assessment years 2013 14 and 2014 15 wherein at para number six the coordinate bench dealt with this issue. The coordinate bench considered the decision of the coordinate bench in assessee s own case for assessment year 1213 as under : 6. Additional claim of deduction of expenses in respect of technical know- how- A similar issue has been decided in A.Y. 2012-13. The relevant findings read as under :- 47. Now coming to the next issue raised which is by way of additional ground of appeal. Since it is legal issue, it is admitted for adjudication. The assessee fairly pointed out that the lump sum Royalty was capitalized in its books of accounts and also not claimed as an expenditure in the return of income. However, because of the settled position by way of the decision of the Jurisdictional High Court in CIT v. Hero Honda Motors Ltd. (supra), the same is being claimed as business expenditure. The relevant findings are as under:- The Hon'ble ITAT in the appellant's own case for assessment Year 2011- 12 reiterated that the facts in the case of the appellant differ from, the facts of Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the decision of the coordinate Bench, we allow assessee s claim, thereby deleting the addition. 14. In ground No. 10, the assessee has challenged disallowance of signage expenses amounting to Rs. 51,87,028/-. 15. Briefly, the facts are, the assessee has incurred expenditure in purchasing glow signboards/signage, which were displayed at location of the dealers. So basically, these are in the nature of business promotion expenses. Accordingly, the assessee, treating them as revenue expenditure, claimed as deduction. The Assessing Officer, however, disallowed the claim stating that they provide enduring benefit, hence, are capital in nature. When the issue came before learned DRP, following their earlier directions, they directed the Assessing Officer to verify whether Tribunal s decision in favour of the assessee has been accepted by the department or else to follow the earlier directions of DRP. 16. Before us, learned counsel for the assessee submitted that the issue has been consistently decided in favour of the assessee by the Tribunal in assessment years 2012-13 to 2017-18. Thus, he submitted, the issue stands covered in favour of the assessee. 17. Learned Departmental Represen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered in favour of the assessee in assessee s own case for AY 2015-16 2016-17. For the sake of reference, relevant portion of the order of AY 2016-17 is given below:- 12. Coming to ground number 7 of the appeal with respect to the disallowance of expenditure of signage is of Rs. 7,545,398/ we find that this issue is also been dealt with by the coordinate bench in assessee s own case for assessment year 2015-16 as under:- 13. Ground No. 8 of the appeal is with respect to the expenses of signage, which was considered by the ld. AO as capital expenditure whereas the assessee claimed it to be revenue expenditure. On carefully consideration of rival contentions, we find that this issue is squarely considered the coordinate bench in ITA No. 7463 and 7064/Del/2018 at para No. 3 of the order. In that para the coordinate bench held that the order of ITAT in assessee's own case for Assessment Year 2012-13 in ITA No. 7714/Del/2017 wherein, as per para No. 26 the coordinate bench held that the expenditure on the signage is allowable to the assessee as revenue expenditure signage are fixed at dealers premises and it dies bit satisfy the test of ownership with the assessee. Thus it was held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the past assessment history, the Assessing Officer disallowed assessee s claim by treating the expenses to be capital in nature. Further, he also observed that such expenses are not supported by agreement. While deciding the issue, learned DRP directed the Assessing Officer to verify whether the decision of the Tribunal in favour of the assessee on identical issue has been accepted by the department and in case it is not so, then to follow the directions of the Penal in assessment year 2015-16 and disallow it. 22. Before us, learned counsel appearing for the assessee submitted that the issue is squarely covered by the decision of the Tribunal in assessee s own case in past assessment years. In this context, he drew our attention to the orders passed by the Tribunal in assessment years 2015-16, 2016-17 and 2017-18. 23. Learned Departmental Representative submitted that in Assessment Years 2003-04 to 2007-08, the Tribunal has decided the issue against the assessee, against which, assessee is in further appeal before the Hon ble High Court. He submitted that without taking notice of its earlier decision, the Tribunal has granted relief to the assessee in Assessment Year 2012-13 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e coordinate Bench of the Tribunal in assessee s own case. The coordinate Bench of the Tribunal in AY 2016-17 on this issue has held in favour of the assessee and the relevant portion of the said order is reproduced as under :- Respectfully following the decision of the coordinate bench in assessee s own case for assessment year 2015 16, we also hold that sales tool expenditure are revenue expenditure in nature and therefore the disallowance made by the learned assessing officer of Rs. 1,92,90,061/- is directed to be deleted. Accordingly, ground number 8 of the appeal is allowed. Hence, following the precedent, we delete the disallowance made by the AO and allow this ground. There being parity of facts in the impugned assessment year, respectfully following the decisions of coordinate Bench, we direct the Assessing Officer to allow assessee s claim. Ground is allowed. 26. In ground No. 12, the assessee has challenged the decision of the departmental authorities in capitalizing a part of the royalty expenses. 27. Briefly, the facts are, in terms with the royalty and technical know-how agreement with the parent company, the assessee has paid royalty of Rs. 11,98,29,81,954/-, which wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue remains identical to past assessment years. However, we must observe, before us, learned Departmental Representative attempted to make out a new case for Department by submitting that in the year 2016, the assessee has set-up a new plant in Gujarat for production of two wheelers. Thus, he submitted that the royalty payment made during the year must have included payment for obtaining technical knowhow for setting up a new start up of the plant, which is certainly in the nature of capital outlay resulting in enduring benefit to the assessee. Therefore, the disallowance of 25% out of the royalty expenses is justified. 31. Having due regard to the aforesaid submissions of learned Departmental Representative, we must observe that neither the Assessing Officer nor learned Dispute Resolution Panel have found any substantial difference in factual position relating to past assessment years and the impugned assessment year. As discussed earlier, the issue has been consistently decided in favour of the assessee in its own case in assessment years 2012-13 to 2017-18. Having gone through the facts and material available on record, we do not find any good reason to deviate from the consis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Act, 2022 with retrospective effect from 01.04.2005 by inserting Explanation-3, which explains that the term tax shall include and shall be deemed to have always included any surcharge or cess, by whatever name called, on such tax. Thus, in view of said amendment in the Act, assessee s claim is unsustainable. Accordingly we uphold the decision of the departmental authorities on this issue. Ground raised is dismissed. 37. In ground No. 14, the assessee has raised the issue of refund of excess dividend distribution tax (DDT) paid amounting to Rs. 44,95,21,880/-. 38. Before the Departmental authorities, the assessee made an additional claim that dividend income under section 115-O is income of the shareholders. Therefore, dividends paid to the shareholders in Japan and Thailand would be subject to the beneficial rate provided under India-Japan and India-Thailand Double Taxation Avoidance Agreement. The departmental authorities, however, rejected assessee s claim by stating that such claim cannot be entertained as it was not made either in the original return of income or through revised return of income. While doing so, they relied upon the decision of Hon ble Supreme Court in cas ..... 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