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Facts
The appellant company challenged an upward adjustment of INR 66,96,52,179/- to its total income for royalty payments to an Associate Enterprise (AE), as confirmed by the DRP. Additionally, the company disputed the disallowance of a deduction claimed under Section 80G for CSR expenses and raised issues regarding short grants of TDS, tax credit, and interest.
Held
The Tribunal directed the Assessing Officer (AO) to give effect to the Unilateral Advance Pricing Agreement (APA) and the modified return of income filed by the appellant. The disallowance of the Section 80G deduction was deleted, following High Court and Tribunal decisions. Other issues related to TDS, tax credit, and interest were remanded to the AO for verification and necessary action.
Key Issues
Whether the upward adjustment for royalty payment is justified in light of the APA, and if the Section 80G deduction for CSR expenses is allowable. Also, issues concerning short grants of TDS, tax credit, and interest.
Sections Cited
80G, 244A, 144C(1), 92CD, 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Mumbai “K” Bench, Mumbai.
Before: Shri Rahul Chaudhary (JM) & Shri Omkareshwar Chidara (AM)
2. On the facts and circumstances of the case and in law, the learned AO and the learned TPO, under the directions of the Hon'ble DRP, erred in proposing an upward adjustment of INR 66,96,52,179/- to the total income on account of payment of royalty to its Associate Enterprise ['AE']. 2.1 The Assessing Officer has erred in not allowing the deduction claimed under section 80G while computing the appellant’s total income for the year under consideration.
2. Then, the appellant company has also raised the issues like short grant of TDS, credit for tax paid on regular assessment was not granted and short granting of interest under section 244A of the Income Tax Act which are mistakes relating computation of tax as per law.
The first and main ground of appeal
in this assessment year, raised by appellant company is that the AO passed a draft assessment order dated 25.9.2023 under section 144C(1) of the Act making an upward adjustment of 2. GIA India Laboratory Pvt. Ltd. Rs. 66,96,52,179/- in relation to payment of royalty to the total income of the appellant by computing arm’s length price of royalty at 53% as per earlier Advance Pricing Agreement (APA) dated 7.5.2018. Subsequently, the DRP has confirmed this upward adjustment.
4. At the time of hearing before ITAT, the Ld. AR of the appellant company has stated that the appellant company has signed Unilateral Advance Pricing Agreement with CBDT on 27.3.2025 in terms of payment of Royalty to Associated Enterprises (AE) was a covered transaction. The Ld. AR of the appellant has filed a note before the Bench where relevant extract of APA is reproduced as follows :- “The covered international transaction of payment of royalty shall be considered to be at arm's length in a previous year, if the payment made by the Applicant in respect of the said transaction does not exceed an amount which represents 53.5% of the operating profit of India Graded Segment of the relevant previous year. Further, it is clarified that the operating profits for the purpose of this sub-item shall be the operating profit of India Graded Segment determined after reduction of payment for all operating expenses but before any deduction on account of royalty”.
5. It was submitted by Ld. AR of the appellant that in terms of this APA, the Royalty was calculated at Rs. 3,12,12,95,549/- which implies that the upward increase is Rs. 66.36 crore as against Rs. 66.96 crore computed by Ld. AO. After the conclusion of APA, in March, 2025 the Ld. AR of the appellant has stated that the appellant company has filed a modified Return of Income on 30.6.2015 in terms of section 92CD of the Act. In view of the same, the Ld. AR of the appellant company requested the Bench to give a direction to Ld. AO to give effect to the modified return filed by the appellant in accordance with the above mentioned Advance Pricing Agreement.
The Ld. DR has stated that the order may be passed as per the Provisions of Law.
Heard both sides. As the appellant company has signed the Unilateral Advance Pricing Agreement with CBDT and accordingly filed a modified Return of Income enhancing the income, the Ld. AO is directed to give effect to this Agreement and pass the order accordingly.
3 GIA India Laboratory Pvt. Ltd.
The second ground of appeal of appellant company is that they claimed a deduction of Rs. 4.18 crore under section 80G of the Act being 50% of the expenditure of Rs. 8.37 crore incurred as Corporate Social Responsibility (CSR) expenses. It was mentioned by Ld. AR that the Ld. AO disallowed the deduction provided by recipients of donation pertains to earlier year were not valid for the captioned year and second being the CSR expenses cannot be given benefit under section 80G of the Act again. As per the first objection that approval certificates provided pertain to earlier years, the Ld. AR of the appellant has relied on the Explanatory Note to Finance Act 2009, which is reproduced below :-
“29.4 Further, as per clause (vi) of sub-section (5) of section 80G of the Income-tax Act, 1961, the institutions or funds to which the donations are made have to be approved b} the Commissioner of Income-tax in accordance with the rules prescribed in rule 11AA of the Income-tax Rule, 1962. The proviso to this clause provides that any approval granted under this clause shall have effect for such assessment year or years, not exceeding five assessment years, as may be specified in the approval. Due to this limitation imposed on the validity of such approvals, the approved institutions or funds have to bear the hardship of getting their approvals renewed from time to time. This is unduly burdensome for the bonafide institutions or funds and also leads to wastage of time and resources of the tax administration in renewing such approvals in a routine manner.
29.5 Therefore, the proviso to clause (vi) of sub-section (5) of section 80G has been omitted to provide that the approval once granted shall continue to be valid in perpetuity. 29.6 Further, the Commissioner will also have the power of withdraw the approval if the Commissioner is satisfied that the activities of such institution or fund are not genuine or are not being carried out in accordance with the objects of the institution or fund.
29.7 Applicability - This amendment has been made applicable with effect from 1st October, 2009. Accordingly, existing approvals expiring on or after 1st October, 2009 will be deemed to have been extended in perpetuity unless specifically withdrawn. However, in case of approvals expiring before 1st October, 2009, these will have to be renewed and once renewed these shall continue to be valid in perpetuity, unless specifically withdrawn.”
The Ld. AR of the appellant has stated that due to the deletion of proviso, the approvals which were in force on 1.10.2009 need not renewed
4 GIA India Laboratory Pvt. Ltd. and would be valid in perpetuity unless withdrawn by Department. In view of the same, it was argued that the approvals are valid for the current year also.
The Ld. DR relied on the final assessment order of Ld. AO on this aspect.
Since the Explanatory Note mentioned by Ld. AR was clear, there is no need of issuance of approval certificate every year and the certificates filed by appellant company of earlier years are held as valid.
Coming to the second objection of Ld. AO that 80G deduction cannot be allowed where appellant has already claimed the same as CSR expenses, the Ld. AR has submitted that this issue was covered in favour of the appellant company in a plethora of decisions of various Tribunals across the country and more importantly by Bombay High Court decision of Castrol India Vs. DCIT (2024) 101 taxman.com 75 (Bom) and ACIT Vs. Sikkar Ports and Terminals Ltd. reported in (2025) 173 taxman.com 366 (Mum-ITAT).
On the above objection, the Ld. DR relied on assessment order.
After hearing both parties, the Bench decided to follow the decisions mentioned by Ld. AR – Castrol India (supra) and Sikka Ports (supra) and hence the disallowance made by Ld. AO with respect to 80G deduction is deleted.
As mentioned in page No. 1 of this order, the appellant company raised other grounds relating to short grant of TDS, credit not given to taxes paid, short grant of 244A interest. These are basically issues relating to verification as per record. The Ld. AO is directed to get the particulars from the appellant company and their grievances should be taken care as per law. The Ld. AO is directed to provide the details of taxes paid by them with proof, so that due credit would be given to the taxes paid.
5 GIA India Laboratory Pvt. Ltd.
Thus, the appeal of appellant company is allowed. Order pronounced in the open Court on 21/11/2025.