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Income Tax Appellate Tribunal, DELHI BENCHES: “I-1”: NEW DELHI
Before: SHRI R.S. SYAL & SH. K.N. CHARY
Date of Hearing : 11.6.2018 Date of Pronouncement : 11.06.2018 ORDER PER BENCH : This batch of two sets of cross appeals relates to assessment years 2010-11 and 2011-12. Since some of the issues raised in these appeals are common, we are, therefore, proceeding to dispose them off by this consolidated order for the sake of convenience.
ASSESSMENT YEAR- 2011-12
Ground nos. 1 to 10 deal with Transfer Pricing additions. The learned AR stated at the outset that the assessee has settled the transfer pricing disputes through Mutual Agreement Procedure (MAP). These grounds were therefore not pressed. The same accordingly stand dismissed.
The only other issue raised in the assessee’s appeal is against the disallowance of Rs.1,02,28,360/- made by Assessing Officer under section 14A of the Act. Briefly stated facts of the case are that the Assessing Officer
ITA Nos. 1665, 1769/Del/2016 & 291Del/2016 noticed the assessee to have made investments in securities yielding exempt income. Applying the provisions of the Rule 8D, he made the above disallowance. However, there is a categorical finding in para 5.2 of the final assessment order dated 10.12.2015 that ‘the assessee has not earned an exempt income.’
Having heard both the sides and perused the relevant material on record, it is observed as an admitted position that no exempt income was earned by the assessee during the year. The Hon’ble jurisdictional High Court in Cheminvest Ltd. vs. CIT (2015) 378 ITR 33 (Del) and CIT vs. Holcim India P. Ltd. (2014) 90CCH 081-Del-HC has held that if there is no exempt income, there can be no question of making any disallowance u/s 14A. In view of these precedents, which are squarely applicable to the facts of the instant case, we hold that the ld. CIT(A) was not justified in sustaining the disallowance. We order to delete the same. This ground is allowed.
The only issue raised by the Revenue in its appeal is against deletion of addition of Rs.1,70,54,520/-, being, the amount of R&D Cess in respect of royalty payment.
ITA Nos. 1665, 1769/Del/2016 & 291Del/2016 6. Briefly stated facts of the ground that the assessee paid Rs. 27.27 crore as royalty payment and Rs. 6.83 crore as franchisee fee to McDonald’s Corporation. The assessee also paid Rs. 1.70 crore as R&D Cess on such royalty and franchisee fee. The TPO determined Nil ALP in respect of royalty fee and franchisee fee. The Assessing Officer also disallowed R&D Cess on royalty and franchisee fee amounting to Rs. 1.70 Crore. The DRP deleted the disallowance, against which the Revenue has come up in appeal before the Tribunal.
Having heard both the sides and perused the relevant material on record, it is observed that the payment of R&D Cess on royalty and franchisee fee paid to the Government of India is not dependent upon the arm’s length price of royalty and franchisee fee paid by the assessee to its associated enterprise. Notwithstanding the fact that the TPO determined nil ALP of royalty payment and franchisee fee, the amount paid as R&D Cess on these payments has to be allowed as deduction since it is a statutory payment to the Government. In our considered opinion, the DRP rightly decided this issue in assessee’s favour. This ground fails.
ITA Nos. 1665, 1769/Del/2016 & 291Del/2016 8. In the result, the appeal of the assessee is partly allowed and that of the Revenue is dismissed.
ASSESSMENT YEAR- 2010-11
Ground nos. 1 to 8 deal with Transfer Pricing addition. The learned AR did not press the same as the matter has been settled through Mutual Agreement Procedure (MAP). These grounds are, therefore, dismissed as not pressed.
The only other ground is against the disallowance of Rs.1,29,28,110/- made by the Assessing Officer under section 14A of the Act. At the outset, the learned AR submitted that, like the A.Y. 2011-12, no exempt income was earned by the assessee during the year. He, however, could not point out any finding recorded by the Assessing Officer in his order to this effect. In the given facts, we set aside the impugned order and remit the matter to the file of the Assessing Officer. He will examine the assessee’s contention of not having earned any exempt income during the year. If such contention is found to be correct, then no disallowance will be made in the light of our
ITA Nos. 1665, 1769/Del/2016 & 291Del/2016 discussion made hereinabove in relation to the appeal for the assessment year 2011-12. In otherwise scenario, the disallowance will be made as per law.
The only ground raised by the Revenue in its appeal is against the deletion of addition on account of R&D Cess on royalty etc. Both the sides are in agreement that the facts and circumstances of this ground are similar to those of the assessment year 2011-12. Following the view taken by us for such year, we dismiss the departmental ground.
In the result, the appeal of the assessee is partly allowed for statistical purposes and that of the Revenue is dismissed.
The order pronounced in the open court on 11th June, 2018.