DCIT, NEW DELHI vs. M/S. CASIO INDIA (P) LTD., NEW DELHI

In any case, legal ownership of intangibles, by itself, does not confer any right ultimately to retain returns derived by MNE group from exploiting the intangibles, even though such returns is initially accruing to the legal owner as a result of its legal /contractual right to exploit the intangible. The return depends upon the functions performed by the legal owner, assets it uses, and the risks assumed; and if the legal owner does not perform any relevant function, uses no relevant assets, and assumes no relevant risks, but acts solely as a title holding entity, then the legal owner of the intangible will not be entitled to any portion of the return derived by the MNE group from the exploitation of the intangible other than the Arm’s Length compensation if any for holding the title.

Otherwise also, it would be very difficult to determine the impact of increase intensity of advertisement function on profit margin, the impact of advertisement on sale cannot be determined or quantified in a particular year, and therefore, even if AMP expenditure is to be compared with other comparables by applying any method, it would be very difficult to make reasonably accurate adjustment to the profit margins of the comparables companies. Thus, it would be 53 I.T.As. No.1764 & 2276/DEL/2015 very difficult to treat AMP as separate international transaction and any attempt to benchmark such a presume transaction in any manner would be a very difficult exercise.

The entire finding and approach of the TPO and DRP has been purely based on hypothesis and one of the agreement entered in the earlier year for a limited period of six months and this has been stated to be a material so as to determine that there was an international transaction qua AMP expenditure in this year. Such a presumption based on said agreement cannot be inferred in this year at all as, firstly, it was for a very limited period in one of the earlier year as stated above; and secondly, each year has to be seen independently and if no such material act is permeating then presumption cannot be drawn for perpetuity. Thus, Revenue has failed to bring on record any material or any kind of arrangement existing between the AE and Assessee Company that there was separate international transaction with regard to AMP expenditure. Thus, on the facts and circumstances of the case, we hold that AMP expenditure cannot be treated as separate international transaction which needs separate benchmarking and accordingly we delete the entire AMP adjustment made by the Assessing Officer.

The next issue raised in assessee’s appeal is with regard to bad debts of Rs. 3,86,63,023/-,

The brief facts emanating from the impugned orders are that, assessee-company was initially named as "Casio Bharti

54 I.T.As. No.1764 & 2276/DEL/2015 Mobile Communications Limited" with the sole motive of doing pager business in India. However, in view of the adverse scenario of the pager business in India, Casio India has discontinued the Pager business; owing to which, there were outstanding dues pertaining to Pager business and the same had been appearing in the books of accounts of Casio India since FY 2001-02. Despite numerous attempts by Casio India to recover the said amount of debts via legal notices, recovery suits and other legal actions, most of these companies either gone under liquidation or were declared dormant for which reference was made to Items 16A to 16E of the paper-books being reports on the same by the Registrar of Companies, NCT of Delhi. Subsequently, on the basis of the observations made by the Statutory Auditors, the aforesaid amount was declared as bad debts and written off in books of accounts though the provision as made in FY 2000-01 and no deduction was claimed on account of the same. It was further submitted by the assessee that as per as per normal business prudence and in accordance with generally accepted accounting principles, Rs. 4,36,84,216/- had been written off from the Books of Accounts in the FY 2009- 0. However, the same was routed through the Profit & Loss account. The amount of provision that was created in FY 2001-02 was written back amounting to Rs. 4,36,84,216/- and simultaneously an expense of Rs. 4,36,84,216/- was booked as the bad debts written off. Therefore, in effect there was no impact on the profit and loss account as it was credited and 55 I.T.As. No.1764 & 2276/DEL/2015 debited with the same amount. Subsequently, on account of credit entries worth Rs.50,21,193/- the taxpayer claimed bad debts of Rs.3,86,63,023/- in the computation of Income for AY 2010-11. The break-up of the sum of Rs.4,36,84,216/- was given as under:

The DRP required the assessee to submit the copy of account of all the five entities which was duly submitted. The assessee’s case before the DRP was that though it has debited Rs.4,36,84,216/- in the profit & loss account but it has credited simultaneously the item 'other income' by an equivalent amount. Such credit to other income was out of write back of the provision made in FY 2000-01 of Rs.6,91,84,544/-. It was stated that the provisions so made in FY 2000-01 were not claimed as deduction by the taxpayer in the relevant year. For this purpose copy of total computation income for AY 2001-02 was submitted where the 56 I.T.As. No.1764 & 2276/DEL/2015 provision for doubtful debts created during the year of Rs.6,91,84,545/- have been added to income and finally business loss of Rs.1,11,62,127/- computed. Further the item ‘other income’ for assessment year 2010-11 contains a sub item ‘provisions no longer required written back of Rs.5,96,96,810/-, the break-up of which is as under:

However, in the order giving effect the Assessing Officer has rejected the assessee’s submission summarily holding that it cannot be conclusively held that amount of Rs.3,,86,63,203/- quantified the context prescribed u/s.36(1)(vii) r.w.s. 36(2) for allowing the bad debt.

After considering the submissions made by both the parties and on perusal of the relevant material referred to before us, we find that it is not in dispute that there were certain outstanding dues pertaining to earlier business and same has appeared in the books of account of CASIO India since financial year 2001-02. Later on, based on observations made by the statutory auditors, the amount was declared as bad debt and was written in the books of account. The provision was made in the Financial Year 2000-01 and no deduction was claimed on account of same in any of the year. The assessee had written-off this amount from the books of account in the relevant financial year, albeit the same was routed through the P&L account and the amount of provision that was created in financial year 2001-02 was written back

Before us, the ld. counsel has also filed copy of ledger account of these parties right from the financial year 1998-99 onwards. Since assessee has credited other items the details of which has been incorporated by the DRP as reproduced above and net debt was claimed in the return of income. This amount of Rs.3,86,63,023/- ostensibly is part of the same amount of Rs.4,36,84,216/- which was actually in the nature of bad debt and has been written off in the books of account. Thus, all the conditions laid down for claiming of bad debt in accordance with Section 36(1)(vii) stands duly satisfied; and we find no reason as to why the Assessing Officer has made the disallowance, when assessee has produced all the copy of ledger account which contains amount taken as sales in the earlier years and same has been written off in this year.

Coming to the Revenue’s appeal, only ground raised is against the direction of the DRP for allowing the deduction u/s.10A.

The facts in brief are that assessee has claimed deduction u/s.10A for its STPI Unit amounting to Rs.3217591/- and in support, Form 56F was filed claiming 100% of deduction u/s.10A. In the draft order, Assessing Officer has held that assessee was entitled to 50% as it was the 7th year of the claim after interpreting section 10A(1A) and after five years the assessee is only entitled to 50% of deduction for two years and thereafter 30% for next three years. Accordingly, he has restricted the allowability of Rs.16,08,796/-. The assessee submitted that the deduction u/s.10A has been claimed by it in the Assessment Years 2004-05, 2005-06 and 2006-07 which was allowed by the Assessing Officer and for the subsequent years the matter was in dispute before the ld. CIT (A).

The DRP threadbare analyzed the earlier provision of Section 10A inserted by Finance Act, 1981 and new Section 10A substituted by the Finance Act, 2000 w.e.f. 01.04.2001 and also CBDT No. 794 explaining the new provision substituting the new provision. However, analyzing the entire provisions, the DRP held that it is an undisputed fact that STP unit was set up in Financial Year 2001-02 and will be 60 I.T.As. No.1764 & 2276/DEL/2015 entitled for full tenure of ten years for deduction. After relying upon CBDT No.5/2010, dated 03.06.2010, wherein the amended Section 10A and 10B were explained to extend the tax benefit uptill Assessment Year 2011-12. This circular clarified the amended provision to Section 10A (1) of the Finance Act 2010, whereby the date of sunset was extended by one more year, i.e., Assessment Year 2011-12. Accordingly, DRP held that the deduction u/s.10A is admissible to unit set up after even 01.04.2001 and the provision of Section 10A(1) as referred by the Assessing Officer would not be applicable in the case of the assessee because that was applicable only for SEZ, whereas the assessee is a STP unit.

After hearing both the parties and on perusal of the relevant findings given in the impugned orders, we find that it is an undisputed fact that assessee has claimed deduction u/s.10A for its STP unit. By the Finance Act, 2000 Section 10A was substituted w.e.f. 01.04.2001 wherein it was provided that deduction of profits and gains derived by an undertaking for the export of article, thing or computer software will be for the period of 10 consecutive Assessment Year beginning with the Assessment Year relevant to the previous year in which the undertaking to manufacture or produce such article, thing or computer software. The proviso to the said section provided that deduction shall not be allowed after 1st day of April, 2010. Later on, by Finance Act, 2010, there was an amendment in the proviso to Section 10A (1), whereby the sunset clause was extended by one more

In the result, the appeal of the assessee is allowed and Revenue’s appeal is dismissed.