Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCH “K”, MUMBAI
and 23/Mum/2013 are cross appeals by the assessee and the Revenue against the very same order of the CIT(A)-15, Mumbai dated 25/10/2012 pertaining to the assessment year 2008-09. Since both these appeals are heard together, they are disposed of by this common order for the sake of convenience.
ITA No.7253/Mum/2013-Assessee’s Appeal:-
The assessee has raised five substantive grounds of appeal and has also raised one additional ground. At the very outset, Ld. Senior Counsel for the assessee stated that the issue involved in the grounds of appeal are covered by the decision of the Tribunal in assessee’ own case for earlier assessment years. Ld. DR fairly conceded to this.
3. We have given thoughtful consideration to the orders of the authorities below and with the assistance of the Ld. Senior Counsel, we have gone through the earlier decision of the Tribunal in assessees’s own case. We find force in the contention of the Ld. Senior Counsel, except for Ground No.3 and the additional ground, the issues involved in all other grounds have been decided by the Tribunal in assessee’s own case in earlier assessment year.
Let us now proceed by considering each ground of appeal one by one. Ground No.1 relates to the disallowance of Rs.2.47 lacs being 10% of expenditure incurred on account of distribution of gift articles. An identical issue was considered by the Tribunal in assessee’s own case in (Assessment Year : 2008-09) . The Tribunal has considered an identical issue at Para-33 of its order and at Para-34, the Tribunal has restricted the disallowance made by the Assessing Officer to 10% of the total expenses. Respectfully following the decision of Co-ordinate Bench, we direct the Assessing Officer to restrict the disallowance to 10% of the total expenses, which we find the Assessing Officer has done, therefore, this ground is decided against the assessee.
5. Ground No.2 relates to an adhoc addition of Rs.15.40 lacs being 0.5% of value of closing stock of finished goods after reducing the opening stock on account of non-inclusion of damaged stock in valuation of closing stock.
5.1 An identical issue was considered by the Tribunal in assessee’s own case in at Para-15 of its order, wherein the Tribunal has followed the finding of the Co-ordinate Bench given in earlier years and concluded by holding that “ consistent with the above stand we uphold the order of the CIT(A) and dismiss Ground No.3 of the assessee”. Respectfully following the finding of the Co-ordinate Bench(supra), this ground is also dismissed.
Ground No.3 relates to the disallowance made under section 14A r.w. Rule 8D of the Act. The Assessing Officer has considered this issue at Page-16 at Para-7 of his order. During the course of the scrutiny assessment proceedings the Assessing Officer noticed that the assessee has earned dividend income from domestic companies/mutual funds at Rs.24,33,73,938/-, which is claimed as exempt under section 10 of the Act. The assessee was asked to explain why disallowance should not be (Assessment Year : 2008-09)
made under section 14A r.w. Rule 8D of the Act. The assessee filed a detailed reply vide a letter dated 22/7/2011 explaining that the assessee has suo-motu offered Rs.15,21,748/- as expenditure attributable to the earning of the exempt income. The Assessing Officer did not accept the computation of the assessee and proceeded by disallowing Rs.1,10,72,191/- under section 14A r.w. Rule 8D of the Act.
6.1 Assessee carried the matter before the CIT(A) but without any success.
6.2 Before us, Ld. Senior Counsel vehemently submitted that the Assessing Officer has not considered the disallowance made by the assessee and without recording his satisfaction, the Assessing Officer has invoked the provisions of section 14A r.w. Rule 8D of the Act, which is not in consonance with the provisions of the Act. Strong reliance was placed on the decision of the Tribunal in the case of Reliance Capital Asset Management in 4459/Mum/2012 and 4795/Mum/2012. Per contra, the Ld. DR strongly relied upon the findings of the lower authorities.
6.3 We have carefully perused the orders of the authorities below. We have also given thoughtful consideration to the computation of disallowance made by the assessee. It is an undisputed fact that the Assessing Officer has simply invoked the provisions of section 14A r.w. Rule 8D of the Act without making any observation on the computation of disallowance made by the assessee. By doing so, the Assessing Officer has completely ignored clause (2) of section 14A, which mandates the Assessing Officer to record his satisfaction before (Assessment Year : 2008-09) proceeding further. In the instant case, we find that the Assessing Officer has not recorded any satisfaction nor he has made any observation on the computation of disallowance made by the assessee and the disallowance is confirmed by the CIT(A). We accordingly set aside the finding of the CIT(A) and direct the Assessing Officer to delete the impugned addition. Ground No.3 is accordingly allowed.
Ground No.4 relates to the determination of arm’s length price with respect to guarantee commission of 0.20% received by the assessee from its associated enterprise. As mentioned elsewhere, an identical issue was considered by the Tribunal in assessee’s own case in assessment year 2007-08 in and 2178/Mum/2012. We find that similar issue was considered by the Tribunal at Para-7 of its order and at Para-10 the Tribunal followed the findings given by the Co-ordinate Bench in assessment year 2006-07 and upheld the deletion of the addition made by the Assessing Officer on account of T.P adjustment made in respect of commission/fees for the guarantee given by the assessee to its associated enterprises. Respectfully following the findings of the Co-ordinate Bench(supra) we direct the Assessing Officer to delete the addition made on account of guarantee commission. GroundNo.4 is allowed.
Ground No.5 relates to non-granting of depreciation on addition made on account of advertisement expenses in assessment year 2006- 07 and 2007-08.
8.1 Ld. Senior Counsel stated that the Tribunal vide order dated 20/12/2013 for assessment year 2007-08 has allowed the entire (Assessment Year : 2008-09) expenditure as a revenue expenditure, hence the claim of depreciation by the assessee becomes otiose.
8.2 We find force in the contention of the Ld. Senior Counsel. The Tribunal has at Para-5 of its order in has followed the findings of the Co-ordinate Bench for assessment year 2006-07 and deleted the disallowance made by the Assessing Officer on account of expenditure incurred on television advertisement. Since the entire expenditure has been allowed as revenue expenditure, the claim of depreciation becomes otiose. Ground No.5 is accordingly dismissed.
Coming to the additional ground raised by the assessee by which the assessee has claimed that royalty income of Rs.3.17 lacs is received from overseas subsidiary M/s. SCIB Chemicals SAE, Egypt is not taxable in India by virtue of Article-13 of India and Egypt treaty.
9.1 Ld. Senior Counsel drew our attention to the transfer pricing report and pointed out that the royalty income of Rs.3.17 crores was duly explained in the transfer pricing study report, which is exhibited at Pages 446 & 447 of the Paper Book. Ld. Senior Counsel further drew our attention to the agreement entered into between the assessee and M/s. SCIB Chemicals SAE, Egypt, which is exhibited at Pages 475 to 477 of the paper book. Ld. Senior Counsel further pointed out that the royalty income of Rs.3.17 crores have been duly explained in the audit report. It is the say of the Ld. Senior Counsel that all the facts relating to the royalty income were before the lower authorities and only the claim is raised for the first time before the Tribunal, which is purely a legal issue depending upon Article-13 of the Indo-Egypt Treaty. (Assessment Year : 2008-09)
9.2 We have given thoughtful consideration to the additional claim made before us for the first time. We have also gone through the related documents referred to hereinabove. We find force in the contention of Ld. Senior Counsel. The factual matrix is very much available during the course of the assessment/appellate proceedings. Only the claim of exemption is made before us. Article-13 to the treaty states that “royalty arising in contracting state and paid to resident of the other contracting state shall be taxable only in the first mentioned state.” Admitting the additional ground of appeal, we restore this issue to the files of the Assessing Officer . The Assessing Officer is directed to decide the issue in the light of the DTAA. The additional ground is treated as allowed for statistical purposes.
In the result, the appeal filed by the assessee is partly allowed.
ITA NO.23/MUM/2013-Revenue’s Appeal:-
Ground No.1 relates to the deletion of the addition made on account of advertisement expenditure and the claim of depreciation thereon. This issue has been considered and discussed at length in assessee’s appeal, qua Ground No.5 of that appeal. For the reasons discussed therein, Revenue’s appeal on this ground is dismissed.
Ground No.2 relates to the arm’s length price relating to the guarantee commission received by the assessee. This issue has been considered and discussed by us in detail in assessee’s appeal, qua (Assessment Year : 2008-09)
Ground No.4 of that appeal. For detailed reasons given therein, Revenues ground is dismissed.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 20/11/2015.