WHIRLPOOL OF INDIA LTD.,GURGAON vs. NATIONAL E-ASSESSMENT CENTRE, NEW DELHI

By filing this application, the assessee has assailed the final assessment order dated 30.03.2021 passed under Section 143(3)

Ground Nos. 2 to 3, being general grounds, are not pressed, hence, dismissed.

In ground nos. 3.1 to 3.15, the assessee has raised a common issue relating to addition of Rs.84,37,751 on account of difference in the arms length price (ALP) of advertisement, marketing and promotion (AMP) expenses allegedly incurred on behalf of AE.

Briefly, the facts are, the assessee, a resident company, is a subsidiary of Whirlpool USA and is engaged in the business of production, sales and distribution of Whirlpool appliances.

Having carried out the economic analysis, as aforesaid, the assessee claimed the international transaction with the AE to be at arm’s length. The TPO, though, accepted assessee’s bench- marking of the international transactions with the AE, however, he noticed that the assessee has incurred expenditure of 3 SA No.476/Del./2021 Rs.60,75,36,000 towards AMP which works out to 1.39% of the sales. Therefore, he called upon the assessee to show-cause why the transaction relating to AMP expenditure should not be bench- marked separately, since, by incurring such expenditure the assessee has promoted the brand/market intangibles owned by the foreign AE. In its reply, assessee strongly objected to proposed action of the TPO and submitted that AMP expenditure incurred by the assessee cannot be treated as an international transaction as per the definition contained under Section 92B of the Act. The TPO, however, was not convinced with the submissions of the assessee. He held that while incurring AMP expenditures since, the assessee has promoted the brand and marketing intangible of the overseas AE, it has to be treated as international transaction.

Having held so, he proceeded to determine the ALP of transaction by applying Bright Line Test (BLT) method and proposed an adjustment of Rs.63,54,65,205 on protective basis.

Being aggrieved, the assessee raised objections before learned DRP. While deciding the issue, learned DRP, though, took note of the fact that identical issue arising in case of Maruti Suzuki and some other assessees have been decided against the department by the Hon'ble Delhi High Court, however, learned DRP observed that against the decision of the Hon'ble Delhi High Court, Revenue has filed special leave petitions which are pending before the Hon'ble Supreme Court.

Having so observed, the learned DRP noted that identical issue arising in assessee’s own case in assessment years 2014-15 and 2015-16 was decided against the assessee by the DRP. Thus, following their earlier decision as aforesaid, learned DRP upheld the adjustment proposed by the TPO.

Before us, learned counsel for the assessee submitted that the assessee has incurred the AMP expenses relating to the product manufactured and sold by it in India. He submitted, the AMP expenses are related to promotion of assessee’s own products and specifications and features of such product manufactured and sold in India and has nothing to do with AE. It was submitted, merely because the assessee has used the logo/brand of the AE, which is incidental, it cannot be said that 5 SA No.476/Del./2021 AMP expenses were incurred for promoting the brand of the AE.

Learned Departmental Representative submitted, the facts of the impugned assessment year are different from the preceding assessment years. Therefore, the decision of the Hon'ble Delhi High Court and the Tribunal in earlier years would not apply.

We have considered rival submissions and perused the material available on record. We have also applied our mind to the decisions cited before us. At the very outset, we must address the contention of learned Departmental Representative that factually the issue stands on a different footing in the impugned assessment year than the preceding assessment years. On perusal of the facts and material on record, we do not find any merit in the aforesaid submission of the learned Departmental Representative. On a perusal of the order passed by the TPO, it is 7 SA No.476/Del./2021 very much clear that he has proceeded to determine the AMP expenses both on protective as well as substantive basis based on principles laid down in certain judicial precedents, guidelines etc.

As could be seen, in no uncertain terms, learned DRP has observed that the factual matrix of the case in the impugned assessment year remains same as in earlier years i.e. assessment years 2014-15 and 2015-16. Thus, in sum and substance, it has to be concluded that there is no difference in factual position between the preceding assessment years and the impugned assessment year, in so far as, the disputed issue is concerned.

It is observed, for the first time, this issue cropped up in assessee’s own case in assessment year 2008-09. The TPO while determining the ALP of international transaction between the assessee and the AE held that AMP expenditure incurred by the assessee is basically to promote the brand of the AE, hence, would come within the ambit of international transaction.

It is further observed, following the aforesaid decision of the Hon'ble Delhi High Court, the Tribunal held that AMP expenses incurred by the assessee cannot be treated as international transaction. However, considering the fact that the issue is pending before the Hon'ble Supreme Court by way of an SLP filed by the Revenue, the Tribunal restored the issue back to the Assessing Officer to decide afresh after considering the decision of the Hon'ble Supreme Court. In the context of the aforesaid decision of the Tribunal, learned Departmental Representative has submitted before us to remit the issue to the Assessing Officer. However, we have observed, while deciding identical issue

Therefore, respectfully following the aforesaid decision of the Tribunal in assessment year 2015-16, we delete the adjustment.

Ground nos. 4 to 4.4 are in respect of disallowance of AMP expenses under Section 37 of the Act. As could be seen, in tune with the order passed by the TPO, the Assessing Officer held that since the AMP expenses amounting to Rs.60,67,69,273 was incurred for promoting the brand of the AE, it cannot be regarded as the expenditure incurred wholly and exclusively for the 11 SA No.476/Del./2021 purpose of assessee’s own business. Accordingly, he disallowed the expenses.

Learned counsel for the assessee submitted, the issue is squarely covered by the decisions of the Hon'ble Delhi High Court and the Tribunal in assessee’s own case in preceding assessment years.

The learned Departmental Representative could not controvert the aforesaid submission of the assessee.

Having considered rival submissions, we notice that while deciding identical issue in assessment year 2008-09 the Hon'ble Delhi High Court has taken a view favourable to the assessee, while dismissing the appeal filed by the Revenue. The aforesaid decision of the Hon'ble Delhi High Court has been consistently followed by the Tribunal while deciding the appeal for assessment years 2009-10 to 2015-16. In the latest order passed for the assessment year 2015-16, the Tribunal has held as under:

Facts being identical, respectfully following the consistent view of the Hon'ble Delhi High Court and co-ordinate benches, we delete the disallowance. These grounds are allowed.

In ground no.5, assessee has challenged the disallowance of Rs.26,20,527, being expenditure incurred on credit card.

Before us, learned counsel for the assessee submitted, before the authorities below, the assessee has furnished all necessary details to reconcile the difference between the statement of credit card and actual vouchers. In this context, he drew our attention to the factual paper book. He submitted, the Assessing Officer has not explained how difference works out to Rs.26,20,527. He submitted, the actual difference between the AIR information and assessee’s record is only to the extent of Rs.1,35,450 and not what has been disallowed by the Assessing Officer. Without prejudice, he submitted, no disallowance can be made based on AIR information. Finally, he submitted, while considering similar nature of dispute in assessee’s own case in assessment year 2015-16, the Tribunal has restored the matter

In ground no. 6, the assessee has challenged disallowance of Rs.41,60,000, being expenditure on account of daughter’s marriage fund.

Briefly, the facts are, in course of assessment proceedings, the Assessing Officer noticed that the assessee has claimed deduction of Rs.41,60,000 as expenditure on account of daughter marriage fund.

Being of the view that such expenditure does not come within the purview of Section 37(1) of the Act, Assessing Officer disallowed the expenditure.

Learned DRP upheld the disallowance following direction given in assessee’s own case in assessment year 2015-16.

We have considered rival submissions and perused the material available on record. It is a common point between the parties that the Tribunal has decided identical issue in favour of the assessee in assessment year 2015-16. As could be seen from the facts on record, the assessee incurs certain expenditure, being payment made to employees to meet some part of the marriage expenditure of their daughter. It is observed while deciding identical issue in assessee’s own case in assessment

Facts being identical, respectfully following the decision of the co-ordinate bench in assessment year 2015-16, we restore the issue to the Assessing Officer with similar directions. This ground is allowed for statistical purposes.

In Ground no. 7, assessee has challenged disallowance of loss claimed of Rs.80,00,000. In course of assessment proceedings, the Assessing Officer noticed that the assessee has claimed expenditure of Rs.80,00,000 under the head “extra- ordinary item” in the statement of profit and loss account. Being of the view that such claim is not allowable, the Assessing Officer disallowed it and the disallowance was also upheld by the learned DRP.

Before us, learned counsel for the assessee submitted that during the previous year relevant to assessment year under 18 SA No.476/Del./2021 dispute, there was a major flood in Chennai resulting in flooding of goods owned by the assessee. He submitted, as a result of flooding the assessee incurred loss on account of finished goods, consumables, spare parts etc. aggregating to Rs.14,91,33,256. He submitted, out of total loss of Rs.14,91,33,256, the assessee has recovered an amount of Rs.35,00,000 towards the insurance claim till end of March 2016. Further the assessee had received an amount of Rs.6,05,95,925 from sales of stock. Out of the balance amount of Rs.5,50,37,331, net insurance claim receivable by the assessee as on 31.03.2016 was Rs.4,70,37,331.

Strongly relying upon the observations of the Assessing Officer and learned DRP, the learned Departmental Representative submitted, when assessee’s claim has not been settled by the insurer in the impugned assessment year, assessee’s claim cannot be allowed.

We have considered rival submissions and perused the material available on record. The facts on record clearly reveal

In ground no. 8, the assessee has challenged disallowance of Rs.13,271, being interest paid on account of short payment/delay in deposit of TDS.

This issue was argued at some length by learned counsel for the assessee. However, when he was confronted with some judicial

In view of the aforesaid submission of learned counsel for the assessee, this ground is treated as not pressed, hence, dismissed.

In ground no.9, assessee has challenged disallowance of Rs.1,41,16,000, being credit balance written back and treated as income under Section 41(1) of the Act.

Briefly, the facts are, based on the tax audit report filed by assessee, assessing officer held that a sum of Rs.1,41,16,261 is to be treated as profit chargeable to tax under Section 41(1) of the Act.

Before us, it is the specific contention of learned counsel for the assessee that the amount in dispute has already been considered as a part of other income and credited to the profit and loss account and offered to tax. In this context, he drew our attention to the schedule of other income at page 118 of the paper book. Thus, he submitted, that assessee having already offered the amount to tax, it cannot be added again.

Learned Departmental Representative submitted, the issue may be restored back to the assessing officer for verifying assessee’s claim.

Having considered rival submissions, we restore the issue to the assessing officer for factually verifying assessee’s claim that amount in dispute has already been offered to tax as part of other income. In case, assessee’s claim is found to be correct, addition should be deleted. This ground is allowed for statistical purposes.

In ground no.10, assessee has challenged disallowance of Rs.3,29,83,096 out of the expenditure claimed towards travelling and conveyance.

While examining the expenditure claimed by assessee on travelling and conveyance, assessing officer disallowed 10% out of such expenditure purely on ad hoc basis.

Learned DRP upheld such disallowance.

Before us, learned counsel for the assessee submitted, not only assessee maintains regular books of account but the accounts are also audited. He submitted, in course of assessment proceedings, assessee has furnished complete details of all the expenditure incurred on travelling and conveyance. He submitted, without properly verifying

Learned Departmental Representative strongly relied upon the observations of the assessing officer and learned DRP.

We have considered rival submissions and perused the material on record.

It is evident, the assessing officer has rejected a part of the expenditure incurred on conveyance and traveling purely on ad hoc basis. He has not pointed out any deficiency either in the accounts maintained by the assessee or the evidence furnished. When assessee’s books of account are under statutory audit, such ad hoc disallowance in absence of any valid reasoning is unsustainable. Accordingly, we delete the disallowance. This ground is allowed.

In ground no.11, assessee has challenged disallowance of Rs.16,42,981, being expenses on account of presents/gifts and Rs.57,32,496 on account of personnel compensation cost and personnel relocation expenses.

In course of assessment proceedings, assessing officer after verifying the details of the aforesaid expenditure incurred by the assessee, was of the view that they were not incurred wholly and exclusively for the purpose of business. Accordingly, he disallowed them.

Learned DRP upheld such disallowance.

Before us, learned counsel for the assessee submitted, the expenditure on account of relocation, presents and gifts were incurred by assessee for the benefit and welfare of the employees. Hence, expenses cannot be regarded as not wholly and exclusively incurred for the purpose of business. He submitted, complete details relating to such expenditure were furnished in course of assessment proceedings.

Learned Departmental Representative strongly relied upon the observations of the assessing officer and Learned DRP.

We have considered rival submissions and perused the material available on record.

As could be seen, the relocation expenses are incurred by the assessee at the time of relocation/transfer of the employees from one state to another. The expenditure on account of gifts and presents are incurred by assessee towards gifts given to employees, trade partners, distributors etc. at the time of festivals or office celebrations or at the time of marriage of the employees. Thus, considering the nature of expenditure incurred by assessee, it cannot be said that they are not wholly and exclusively for the purpose of business. After all, from the nature of expenditure incurred, it is very much clear that they are for the benefit of employees. That being the factual position emerging from record, disallowance made is unsustainable. Accordingly, we delete them. This ground is allowed.

In ground no.12, the assessee has raised the issue of relief from double taxation under Section 90/91 of the Act.

We have heard the parties and perused the material available on record.

As could be seen, Learned DRP while deciding assessee’s objection on the issue has directed the assessing officer to allow foreign tax credit as per law. Assessing Officer has disallowed

Before us, learned counsel for the assessee submitted, during the year under consideration, two of the overseas associated enterprises of assessee had withheld tax aggregating to Rs.1,17,50,021. He submitted, before the departmental authorities, assessee had furnished the details of tax deducted by the AEs. In this regard, he drew our attention to the details furnished in the paper book.

Further, he submitted, while deciding identical issue in assessee’s own case in assessment year 2015-16, Tribunal has remitted the matter to verify the certificates. Thus, he submitted, in 26 SA No.476/Del./2021 this year also, the issue may be restored back to the Assessing Officer for verification.

Learned Departmental Representative has no objection for restoration of the issue to the Assessing Officer.

Having considered rival contentions and perused the material on record, we find, assessee’s claim of foreign tax credit was disallowed by the Assessing Officer in absence of certificates showing deduction of tax at source.

Considering the submissions of the parties and also the fact that similar nature of dispute arising in assessment year 2015-16 was restored back to the Assessing Officer by the Tribunal, we are inclined to restore the issue back to Assessing Officer for fresh adjudication after factual verification. Needless to mention, assessee must be provided reasonable opportunity of being heard before deciding the issue.

In ground no.13, assessee has raised the issue of deduction of education cess as business expenditure.

At the outset, we must observe, issue raised in this ground does not arise either out of the assessment order or the order of the first

We have considered rival submissions and perused the material available on record.

Assessee’s claim of deduction of education cess is founded on the ratio laid down in certain judicial precedents, as referred to in the written submission filed before us. However, in the Finance Act, 2020, Explanation 3 has been inserted below Section 40(a)(ii) of the Act with retrospective effect from 01.04.2005. The said provision reads as under:

Thus, after insertion of Explanation 3 to Section 40(a)(ii) of the Act, as noted above, education cess, being part of income-tax, cannot be allowed as expenditure. Admittedly, the decisions relied upon by learned counsel for the assessee are prior to the 28 SA No.476/Del./2021 amendment made to section 40(a)(ii) of the Act by insertion of Explanation 3.

In view of the aforesaid, assessee’s claim of deduction of education cess has to be disallowed. Accordingly, we do so. This ground is dismissed.

In the result, the appeal is partly allowed.