AKZO NOBEL INDIA LTD.,KOLKATA vs. NATIONAL E-ASSESSMENT CENTRE, , DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, KOLKATA BEFORE SHRI RAJESH KUMAR, AM AND SHRIPRADIP KUMAR CHOUBEY, JM ITA No.140/KOL/2019 (Assessment Years: 2014-15) ITA No. 14/KOL/2020 (Assessment Years: 2015-16) ITA No. 228/KOL/2021 (Assessment Years: 2016-17) ITA No. 190/KOL/2022 (Assessment Years: 2017-18) ITA No. 212/KOL/2023 (Assessment Years: 2018-19) ITA No. 1987/KOL/2024 (Assessment Years: 2020-21)

Akzo Novel India Ltd. DCIT, Circle 10(1), Geetanjali Apartment, 1st Aaykar Bhawan, Floor, 8B, Middleton Street, P-7, Chowringhee Square, Vs. Kolkata-700069, West Bengal Kolkata-700, West Bengal (Appellant) (Respondent) PAN No. AAACI6297A Assessee by : Shri RakeshJoshi& Gaurav Kabra, Ars Revenue by : Shri Praveen Kishore, CIT-DR Date of hearing: 16.03.2026 Date of pronouncement: 03.06.2026

O R D E R Per Rajesh Kumar, AM:

These are appeals preferred by the assessee against the orders of the ld. Dispute Resolution Panel (hereinafter referred to as the “Ld. DRP]dated 20.09.2018, for A.Y. 2014-15, 30.08.2019 for A.Y. 2015-16, 09.12.2020 for A.Y. 2016-17, 12.01.2022 for A.Y. 2017-18, 04.03.2022 for A.Y. 2018-19, 30.06.2024 for A.Y. 2020-21/AOs.

A.Y. : 2014-15 ITA No.140/KOL/2019 2. Ground No.1 is general in nature and needs no specific adjudication.

“6. We see no reasons to take any other view of the matter than the view so taken by the Division Bench of this Tribunal in assessee's own case vide order dated 18.10.2019. In this order, the Tribunal has inter alia observed as follows: "6. We have heard rival submissions and carefully gone through the material available on record. We also note that the issue in hand is squarely covered by the decision of this Tribunal, in assessee's own case in ITA No. 560/Kol/2016 & ITA No. 315/Kol/2016 wherein the Tribunal by order dated 28.08.2019 has held that that the AMP expenses cannot be regarded as an international transaction as per section 92 B of the Act in the case of the assessee, so as to invoke provisions of section 92 of the Act. And since the AMP expenditure is not an international transaction, the TP adjustment made in this regard need to be deleted and has observed as under: "6. Ground No. 2 & 3, are on the issue of Transfer Pricing (TP) adjustments, made towards advertising, marketing and promotion expenses (AMP Expenses). The Transfer Pricing Officer (TPO) held that by incurring such expenses, the assessee has provided services to its Associate Enterprises (AE). Though a number of arguments were advanced by both the parties on this issue, the primary argument of the assessee is that, the transaction in question is not an international transaction. In other words, the submissions of the assessee is

“8. Ground No.3 raised by the assessee relates to transfer pricing adjustment of Rs.6,31,20,532/- determining arm’s length price of intra-group services in respect of support services received from its AEs as Nil. 9. At the outset itself, the ld. Counsel for the assessee invited our attention to the order dated 18.10.2019, passed by the Division Bench of this Tribunal in assessee’s own case in ITA No.621/Kol/2017 for the Assessment Year 2012-13 whereby the issue of determining arm’s length price of “intra-group services in respect of support services received from its AEs as Nil was discussed and remanded back to the file of the A.O/TPO. Learned counsel for the assessee submitted that the present issue is squarely covered by the aforesaid order of the Tribunal, a copy of which was also placed before the Bench. 10 Learned Departmental Representative relied upon the orders of the authorities below.

“18. Ground No.5 raised by the assessee relates to transfer pricing adjustment of Rs.8,78,78,120/- towards research & training expenditure provided by the assessee to its AE for development and improvement of product of AEs. 19. At the outset itself, the ld. Counsel for the assessee invited our attention to the order dated 18.10.2019, passed by the Division Bench of this Tribunal in assessee’s own case in ITA No.621/Kol/2017 for the Assessment Year 2012-13 whereby the issue relating to transfer pricing adjustment of research & training expenditure provided by the assessee to its AE for development and improvement of product of AEs was considered and adjudicated in favour of assessee. Learned counsel for the assessee submitted that the present issue is squarely covered by the aforesaid order of the Tribunal, a copy of which was also placed before the Bench. 20. Learned Departmental Representative relied upon the orders of the authorities below. 21. We see no reasons to take any other view of the matter than the view so taken by the Division Bench of this Tribunal in assessee’s own case vide order dated 18.10.2019. In this order, the Tribunal has inter alia observed as follows: “9. We have heard rival submissions and carefully gone through the material available on record. We note that in the facts and circumstances of the case of assessee, the R&D expenses incurred by it cannot be regarded as an international transaction as per section 92 B of the Act. We also note that the issue in hand is squarely covered by the decision of this Tribunal in assessee’s own case in ITA No. 560/Kol/2016 & ITA No. 315/Kol/2016 wherein this Tribunal by order dated 28.08.2019 has held that the expenses in question covered under R&T Expenses relate to, service fee paid by the company for R&T Services obtained by the company, from another group company of the assessee i.e., ICT India Research & Technology Centre (ICI). ICT is a company registered u/s 25 of the Act as a “not for profit” organization. ICT provides manufacturing and training support services to the assessee on cost to cost basis. Accordingly, the expenses covered under the head ‘R&T expenses’ pertain to the fee paid to ICT. ICT provides technical support and training to the manufacturing and marketing operations of Paints

8.2. A perusal of the above demonstrates that, on facts the assessee has not carried out any R&T activities. The expenditure in question is incurred only for its manufacturing operations and local environmental compliance from HSE perspective. The assessee submitted that ICT also does not carry out any research and development activities for development of any new project/technology. It is primarily a captive support centre for the local India operation of the assessee. Thus, we are of the considered opinion that the expenditure on research and training does not constitute any international transactions on facts. We also find that the TPO/AO has not considered this expenditure incurred in the earlier years towards R&T expenses, as international transactions. Thus, in view of the above discussion, we hold that the expenditure incurred on R&T is not an international transaction as per Section 92B of the Act, so as to enable invocation of provision of Section 92 of the Act. Thus, we delete the TP Adjustment made in this regard and allow this ground of the assessee.” Respectfully following the decision cited supra in assessee’s own case, we hold that the AMP expenditure in question is not an international transaction, therefore, the TP adjustment made in this regard is hereby directed to be deleted and this ground of appeal of assessee is allowed.”

19.1. The facts in brief are that in draft assessment order dated 18.12.2017 the Assessing officer has discussed this issue in para 3wherein he has treated the said royalty payments as capital in nature instead of revenue expense which is extracted below:

“In accordance with the Part-B of New Appendix-I with reference to Rule-5 of the I.T. Rule, 1962, it should be treated as intangible assets and the entire royalty payment must be capitalized. When a Technical Know-how is licensed to the assessee for a certain period with the exclusive right on non-transferable basis, expenditure for acquiring the same should be treated as 'Capital Expenditure'. From the agreement it is noticed clearly that there is no embargo on the assessee to continue the manufacturing of the product in question even after expiry of the agreement and alls the company has been upgrading their existing plant & machineries to make their finished products more viable for the market from time to time. Hence, the technical know-how for upgrading the manufacturing technology is helping the assessee to enter into the new dimension of the business from time to time. when a Technical Know-how is licensed to assessee for a certain period with the exclusive right on non-transferable basis, expenditure for acquiring the same should be treated as Capital Expenditure. The assessee company derived enduring benefit under the agreement so as to constitute the payment made as capital expenditure. Accordingly, Royalty expense claimed to the extent of Rs. 46,72,01,504/- is capitalised and added back to the

“7.1 The AO has discussed the issue in para 3 (page 7) onwards of the draft assessment order. The AO has considered Explanation 3 ,4 & 5 below Section 32(1) (ii) of the I.T Act and relied on the Hon'ble Supreme Court decision in case of Honda Siel Cars India Ltd v CIT (2017) 82 Taxmann.com 212 (SC) dated 09-06-2017 to hold that the payment of royalty by the assessee to its AEs was capital in nature. Reference has also been made to the apex court decision in case of Alembic Chemical Works Company Ltd (1989) 177 ITR 377. Having examined the royalty agreements it was observed by the AO that there is a feature of perpetuity in the agreement and the same is payable varying from 5% of sales to 0.5% of net sales value. 7.2 Having considered the submission of the assessee, we are of the view that the AO has rightly treated the payment of royalty for the technology and licensed information on formulations, as capital in nature. The assessee's objection is therefore rejected.” 20.1 Considering the direction of the DRP, the AO in his assessment order dated 28.11.2018 has made the addition of Rs 46,72,01,504/- in the hands of the assessee company. The relevant extract of the said order is reproduced as under:

“The Hon'ble DRP-2, New Delhi has vide order dtd. 20-09-2018 upheld the disallowance of royalty payment, being capital in nature, as made in the draft assessment order. Therefore, no effect to DRP order against the draft assessment order specifically on this ground is warranted. [Para No.7 to 7.2, Page No.23]”

a) The Assessee during the year, made royalty payments to its Associated Enterprises (“AE”), namely, (i) Akzo Nobel Chemicals International BV amounting to INR 2,35,67,386 for Chemical Division, (ii) Akzo Nobel Coating International BV amounting to INR 23,41,93,403 for Coating Division; INR 18,85,94,935 for Paints Division; INR 2,08,45,780 for Automobile and Aerospace Division. The total royalty payments made to its AE for various divisions of the Assessee amounted to INR 46,72,01,504. Royalty payments were made to the AEs for use of licence, trademark, drawing copy right, documents, computerisedprogramme design etc. on a non- exclusive licence basis. The Assessee under the royalty payment agreements received only a right to use the license, information, trademarks, corporate brands etc. for sale of products in India vide agreement dated 01.06.2012 from AY 2013-14(refer royalty agreements at pages 968 to 1058 of paperbook). b) It may be pointed out that such royalty payments have been held to be arm’s length by the Transfer Pricing Officer (“TPO”) and further that the same are for the purposes of business have not been disputed by the AO. The only difference of opinion between the AO and the Assessee is with regard to whether the same are to be capitalized or allowable as revenue deduction. c) The AO erred in holding that the royalty payments gave enduring benefit to the Assessee without appreciating the following:  The royalty payments have been made for use of IP, brand and technology etc. for sale of products in the Indian territory in relation to business already existence of a non-exclusive basis;  No new business or line of business has been set up during the year under consideration. The royalty has been paid as 5% to 0.5% of sales and there is no lump sum payment during the year under consideration. d) With regards to AO’s reliance on the case of Honda Siel Cars India Limited, it is submitted that the same is misplaced as in that case Honda Siel had entered into the technical collaboration agreement for setting up a new plant / manufacturing operations in India on exclusive basis and in accordance to such exclusive licence

“In each of the above cases the assessee has laid bare the basic premise on the basis of which it is claiming certain items as plant and Machinery which otherwise appear to be eligible for other heads of assets however, in the case of the assesee, they have not bothered to state as to how these case laws are applicable to the

“9.1 The AO has disallowed depreciation on electrical fittings which according to the assessee was eligible for higher rate of depreciation. The AO held that the electrical installation were to be clubbed under the head plant and machinery and allowed depreciation of 10% Further he rejected, the additional depreciation claim u/s 32(1)(ii a) amounting to Rs. 112,43,634/-. 9.2 Having heard the submission of the assessee we are of the view that electrical fittings / installation in a manufacturing unit has been given separate head and rate of depreciation under the Act. Merely because such electrical fittings/ installations are placed with the plant and machinery does not make such fittings as plants and machinery itself. In view of the above the AOs action is upheld and assessee's objection is rejected. We are also of the view

“The Hon'ble DRP-2, New Delhi has vide order dtd. 20-09-2018 upheld the disallowance of excess depreciation, as made in the draft assessment order. Therefore, no effect to DRP order against the draft assessment order specifically on this ground is warranted. [Para No.9 to 9.2, Page No.24 to 25]” 26. Ld. AR submitted as under

a) Assessee had claimed depreciation on electrical cables, installations and other electrical items under the block “Plant and machinery” on the ground that these electrical fittings / cables were installed in the plant / factory premises and were integral part of plant and machinery used for manufacturing activity of the Assessee Company. The AO has erred in not appreciating that the electrical fittings as used in the block of “furniture and fittings” in Appendix -1 of the depreciation table is in relation to the electrical fittings used along with furniture and not the electrical fittings / cables which are used as part of plant and machinery at the factory premises. The impugned electrical fittings / cables etc. claimed under the head “electrical cables” primarily consist of cables, wires, DG set and related installation thereof and are installed in plant/factory premises which ensures smooth functioning of manufacturing activity. Hence, these had been rightly classified as plant and machinery by the assessee and claimed depreciation at the rate of 15%. b) The AO has erred in disallowing the balance additional depreciation claimed at the rate of 10% on the ground that third proviso to section 32(1)(ii) of the Act since was inserted by Finance Act, 2015 w.e.f. April 1, 2016, therefore, the same cannot have been applied retrospectively for claim of additional depreciation.

c) The AO erred in not appreciating that the claim for additional depreciation was made under section 32(1)(ii) of the Act which prescribes for allowance of additional depreciation at the rate of 20% on the actual cost of plant and machinery which has been acquired or installed after the March 31, 2005. The proviso inserted by Finance Act 2015 w.e.f. 1.4.2016 only clarifies that in case of an asset referred in clause (iia) is put to use for a period of less than 180 days, the depreciation shall be restricted to 50% in the year when the asset is first put to use and balance 50% shall be allowed in the immediately succeeding year. In other words, third proviso of section 32(1)(ii) of the Act as inserted by Finance Act, 2015 only clarifies the allowability of depreciation where the assets are put to use and / or installed in previous year for less than 180 days. The same, therefore, was only clarificatory / curative in nature. The AO, thus, erred in disallowing the balance additional depreciation claimed at the rate of 10% on eligible plant and machinery. Reliance in this regard is placed on the following decisions wherein the insertion of third provisio has been held to be clarificatory in nature and thus, retrospectively applicable:  CIT vs Riettal India: 66 Taxman.com 4 (Karn);  CIT vs T.Pem. Taxtile Pvt. Ltd.: 79 Taxman.com 411 (Mad.) d) Further, reliance is also placed on the decision of Gujarat HC in the case of PCIT vs BanaskanthaDist Co. Op Milk Producers Union Ltd (168 taxmann.com 154) (Page 79-82 of the legal paperbook)(Emphasis applied) 27. After hearing the rival sides and perusing the records as placed before us, we find that the electrical cables, wires, DG set and related installations are integral to the manufacturing operations of the assessee and therefore have been correctly classified under the block of Plant and Machinery, entitling the assessee to depreciation at the applicable rate. The action of the Assessing Officer in treating the same as Furniture and Fittings is therefore unsustainable. Further, the disallowance of the balance additional

“The reading of the section and the Explanation thereto in tandem with Rule 6(1) makes it very clear that even to claim revenue expense as Research and Development for business purpose requires certification of the prescribed authority i.e DSIR, to ensure that such Research and Development has a business relation with the same. In fact from the foot note to enclosure 6 it is quite apparent that the assessee is under a misconception as the auditor has also noted the absence of such certification with regard to it's the Research and Technology Centre Thane for the years 1999-2006 and any extension beyond has not been granted.

“10.1 The AO in para 6 of the draft assessment order has referred to the provisions of Section 35(1)(i) which refers to the amount paid to any research association which is allowed weighted deduction of 1.50 times of the amount paid by an assessee to an approved institution. In view of the AO, since the approval to R&D centre Thane was not extended beyond 2006 the expenditure was not allowable. 10.2 Assessee has submitted that payment was made to ICI Research technology Centre for scientific research and development work. The assesse has taken an alternative plea that the expenditure be allowed u/s 37 of the Act. 10.3 Having considered the submission of the assessee we are of the view that the payment to a scientific research and development institute/organisation is assesse neutral, in the sense that the payment for/to an approved project or the organisation is allowable to an assessee merely on payment. For allowing the deduction u/s 37 the assesse has to demonstrate that the expenditure was wholly and exclusively for the purpose of business. The assesse has failed to demonstrate the purpose and scope of R&D work assigned to the third party and any result/output from the same, having connection with the assessee's business. The assesse has incurred substantial in-house R&D expenditure and also carried out confant R&D activity. It is for the assesse to justify the payment made to an outside agency for Re for allowing the same u/s 37 as business expenditure, which it failed to do. The payment is herefore not allowable u/s 37 of the Income Tax Act. Assessee's objection and alternate plea are rejected accordingly. 10.4 The is directed to examined the issue for earlier years also, as applicable.” 31. The ld., AR submitted that During the year, the Assessee had claimedexpenditure amounting to Rs.10,11,35,652 under section 35(1)(i) of the Act, being incurred for the purposes of scientific and research and development. The Assessee had made payment to ICI Research Technology Centre for the scientific research and

 Dr. Reedy’s Laboratory Limited vs CIT: (2017) 78 taxman.com 63 (Hyderabad Trib.)  ACIT vs Parabolic Drawings limited: (2013) 33 taxman 661 (Delhi)

“1. That on the facts and circumstances of the case and in law, the dividend distribution tax ("DDT") paid by the Appellant on the dividend distributed toImperial Chemical Industries Limited, England, Akzo Nobel Coatings International B.V., Netherlands and Akzo Nobel Chemical International B.V., Netherlands be reduced to tax rate as provided under the Dividend Article of the respective Double Taxation Avoidance Agreement ("DTAA" or "tax treaty") instead of 16.995% charged in terms of section 115-0 of the Act. 2. That on the facts and circumstances of the case and in law, Education Cess ("EC") and Secondary Higher Education Cess ("SHEC") paid on Income Tax and DDT needs to be considered as an allowable expenditure under section 37(1) of the Income-tax Act, 1961.” 36. After hearing the rival contentions and perusing the material on record, we find that the assessee has raised the above additional ground in respect of Denial of Lower tax rate under DTAA on the amount of dividend paid to Foreign shareholders and non-grant of credit of DDT paid & consequential levy of interest u/s 115P and not allowing education cess and SHEC paid on income tax as allowable expense u/s 37(1) of the Act. In our opinion the issued

“12.10 Clauses (iiihk) & (iiihl) of sub- section 2 of Section 80G of the Act rather makes the intention of the legislature more clear that-any sum spent on any CR activity, as mentioned in Schedule VII of the Companies Act,2013t yeil kill not be eligible for deduction under section 80 G of the Act. 12.11 In view of the above discussion, DRP is of the view that any sum spent on CR activity is not eligible for deduction u/s 80G of the Act. Assessee's objection is rejected.” 12.12 In regard to the claim of deduction u/s 35AC of the Act, DRP is of the view that the assessee is eligible for deduction u/s 35AC of the Act subject to fulfillment of conditions as prescribed in the said section. 12.13 Such conditions are that a certificate has to be issued to the donor in form 58A. The certificate will enable the donor to claim exemptions. Whether the payment is made to a public sector company or a local authority or an association or institution, the certificate has to be issued by such entities. In any other case, from an accountant, as defined in the explanation below subsection (2) of section 288. Particulars relating to the progress and the work relating to the eligible project or a scheme during the previous year must be mentioned in the certificate. It has also to be ensured by the donor that the done organisation continues to enjoy approval under section 35 AC of the Act. 12.14 AO is therefore directed to examine the facts in this regard and if assessee has furnished all the relevant documents/evidences to show that it fulfills all the above conditions for claiming the deduction u/s 35AC of the Act, the same may be allowed. Ground of objection is disposed off accordingly. 70. The Assessing Officer, in para 9 (page 18) of the order dated 30.03.2021, has discussed the issue and, in accordance with the directions of the DRP. However, the AO failed to appreciate the directions given by DRP referring to section 144C(8) and added entire amount making an addition of Rs 1,05,64,410/-. The relevant extract of said order is reproduced below:

“The Hon'ble DRP has in its order dated 09.12.2020, (extract above), upheld the same with regard to disallowance of deduction u/s 80G. For the issue of disallowance of claim u/s 35AC, fresh examination was

70.1. The ld. AR submitted as under :-

a) The Assessing Officer, in the assessment order, has held that the expenditure incurred towards Corporate Social Responsibility (CSR) does not qualify as having been incurred for the purposes of business or profession. Accordingly, the AO concluded that no deduction is allowable under either section 80G or section 35AC of the Act.In response, the Ld.AR of the assessee contested that, in the absence of any specific statutory prohibition under sections 80G or 35AC, the claim for deduction cannot be denied. In support of this proposition, reliance was placed on the following judicial precedents: • Goldman Sachs Services Pvt. Ltd. vs. JCIT (117 taxmann.com 535) • Allegis Services India Pvt. Ltd. (ITA No. 1693 of 2019) b) With regard to section 35AC, it was submitted that the DRP has already allowed the claim of deduction, subject to verification and fulfilment of the prescribed conditions. Thus, before your honours, it is submitted that even the DRP has accepted the assessee’s plea that deduction u/s 35AC is allowed. Hence, it is submitted that the addition made by the AO needs to be deleted in view directions of the DRP.

c) As regards deduction claimed u/s 80G, the assessee submitted that CSR expenditure qualifies for deduction and placed reliance on the following decisions wherein it has been held that thus, assessee would be entitled to deduction under section 80G even if amount was donated under CSR expenses: • Linde Global Support Services Pvt. Ltd. vs. AO, Circle- 11(1), Kolkata (ITA No. 1470/Kol/2024)

“6.4.1 Section 32AC(1A) envisages a minimum addition of Rs. 25 crore of machinery to be eligible for the benefit thereunder. Therefore, in view of the above, it is held that the assessee is not eligible to claim any benefit under Section 32AC(1A)) 6.4.2 As such, the entire amount of deduction claimed under Section 32AC(1A) of Rs. 4,49,24,357/- is disallowed and added back to the total income of the assessee.” 83. Ld. DRP has held that machine installed at premise of dealer doesn’t contravene the requirement of section 32AC(1A) of the

“9.5 On perusal of the above clauses of the lease agreement of the assessee with the dealers, it is seen that the said Colour Solution /Mixing Machines are installed by the assesseeat the dealer's premises strictly for the purpose of the assessee's products. The said equipment can also not be shifted to any other premises and cannot be used for product supplied by any other entity. The limited purpose of the machines provided to the dealers is to carry out mixing operations as per the specific requirements of the end customers. The Panel is of the view that such mixing operations for the satisfaction of the end consumer forms part of the core business activity of the assessee. So long as the machines have been purchased and installed for the purpose of the assessee's business, the fact that they are installed at the premises of the dealer does not contravene the requirements of section 32AC(1A) of the Act. As seen from the aforesaid clauses of the lease agreement, the dealers are bound to use the machines solely for the purposeof the assessee's products, failing which the agreement stands terminated. The revenue recognition disclosure in the Annual Report confirms that sale is recognized when the control of the products is transferred, which in this case is seen to be when the final tinted paint is sold to the customer. Until such point, the assessee is seen to have control of the machines leased out to the dealers and its products. The AO is accordingly directed to verity the aforesaid clauses of the lease agreement as per record in terms of section 144C(13) of the Act and to allow the deduction in respect of the said machines, subject to the fulfillment of all other conditions stipulated in section 32AC(1A) of the Act. Ground 9 is disposed of as above.” 84. The AO in his final assessment order (page 21 of the order) has concluded that the direction of the DRP is not tenable in view of the provision of section 144C(8) of the Act and added the said amount to the total income of the assessee company.

Order pronounced in the open court on 03.06.2026.

Sd/- Sd/- (PRADIP KUMAR CHOUBEY) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) ----+ Kolkata, Dated: 03.06.2026 Sudip Sarkar, Sr. PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent

Asst. Registrar Income Tax Appellate Tribunal, Kolkata