BENETTON INDIA PRIVATE LIMTED,GURGAON V. DCIT, CIRCLE-4(2), NEW DELHI

ITA 1668/DEL/2022

AI Insights

Benetton India Private Limited filed appeals against the final assessment orders for the assessment years 2018-19 and 2020-21, which involved Transfer Pricing adjustments. The main issues revolved around the payments made for royalty, consultancy services, and advertisement expenses, which the Assessee argued were at arm's length and supported by previous Tribunal decisions. The Department of Revenue supported the original assessments. The Tribunal's decision leaned heavily on the consistency of its previous rulings in similar cases, favoring the Assessee on most contested issues.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126192 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2018-2019
• Other Referred Cases: Sony Ericcson Mobile Communications v. CIT, JCIT Vs. M/s Texas Instruments (India) Pvt. Ltd., ITO Vs. Scheme A1 of ARCIL CPS 002 XI Trust, Reliance Lifestyle Holdings Ltd. Vs. DCIT, Dalmia Dairy Vs. Commissioner of Income Tax, Supreme Build Cap (P) Ltd. Vs. Assistant Commissioner of Income Tax, Mahaveer Kumar Jain Vs. Commissioner of Income Tax, Jaipur, Laxmipat Singhania Vs. Commissioner of Income Tax, Commissioner of Income Tax Vs. Murlidhar Jhawar and Purna Ginning and Pressing Factory
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S.K. JHADAV
• Assessee Lawyers: DEEPAK CHOPRA; SHEETAL KANDPAL
• Keywords: Transfer pricing; International transaction; Rule of consistency; Commercial expediency
• Section: 143(3); 119; 154; 143(1); 13; 37; 2; 43B; 144C; 72; 10B

Judgement Text

"ITA Nos.1668/Del/2022 & 3686/Del/2024 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “I ” NEW DELHI BEFORE SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER आ.अ.सं/.I.T.A No.1668/Del/2022 िनधा रणवष /Assessment Years:2018-19 Benetton India Private Limited, Plot No.25, Block B, Infocity, Sector-34, Gurgaon, Haryana. PAN No.AAACD1013F बनाम Vs. DCIT, Circle-4(2), C.R. Building, ITO, I.P. Estate, New Delhi. अपीलाथ\u0014 Appellant \u0016\u0017यथ\u0014/Respondent & आ.अ.सं/.I.T.A No.3686/Del/2024 िनधा रणवष /Assessment Years:2020-21 Benetton India Private Limited, Plot No.25, Block B, Infocity, Sector-34, Gurgaon, Haryana. PAN No.AAACD1013F बनाम Vs. Assessment Unit, DCIT, Circle-4(2), Income Tax Department, Delhi. अपीलाथ\u0014 Appellant \u0016\u0017यथ\u0014/Respondent Assessee by Shri Deepak Chopra, Adv. & Ms. Sheetal Kandpal, Adv. Revenue by Shri S.K. Jhadav, CIT DR सुनवाईक\bतारीख/ Date of hearing: 10.03.2025 उ\u000eोषणाक\bतारीख/Pronouncement on 23.04.2025 आदेश /O R D E R PER C.N. PRASAD, J.M. These two appeals are filed by the Assessee against the final assessment order passed by the Assessing Officer u/s 143(3) r.w.s. 144C(13) dated 30.06.2022 and 28.06.2024 pursuant to the directions ITA Nos.1668/Del/2022 & 3686/Del/2024 2 of the DRP u/s 144C(5) of the Act dated 02/05/2022 and 08/05/2024 for the assessment years 2018-19 and 2020-21 respectively since in these two appeals the Transfer Pricing adjustments made by the Assessing Officer are similar and identical. Both these appeals are heard together and disposed of by way of common order. 2. For the AY 2018-19 the Assessee raised the following grounds in its appeal: - “Based on the facts and circumstances of the case, Benetton India Private Limited (‘the Appellant’) respectfully submits the following additional ground of appeal for admission before your Honours: Ground 1 – The directions issued by the Hon’ble Dispute Resolution Panel (‘DRP’) are liable to be quashed as being violative of CBDT Circular No.19 of 2019. On the fact and the circumstances of the case and in law, the directions issued by the Hon’ble DRP dated 2 May 2022 u/s 144C of the Income Tax Act, 1961, is in violation of CBDT Circular No. 19 of2019 dated 14 August 2019 and hence is liable to be quashed as invalid. Consequently, the resultant final assessment order issued u/s 143(3) r.w.s. 144C(13) of the Act is also invalid and non-est. The said ground is independent and without prejudice to the other grounds of appeal preferred by the Appellant. The Appellant craves leave to add or alter, by deletion, substitution, modification or otherwise or amend or withdraw the Additional Ground of Appeal herein and to submit such statements, documents and papers as may be considered necessary either before or during the hearing of the appeal.” ITA Nos.1668/Del/2022 & 3686/Del/2024 3 3. We also observed that the Assessee has raised additional ground stating that the order of the DRP was passed without a computer generated Document Identification Number (DIN) and, therefore, in view of the CBDT Circular No. 19/2019 dated 14/08/2019 the order of the DRP shall be treated as invalid and shall be deemed to have never been issued. The Ld. Counsel for the assessee submits that this additional ground raised by the Assessee is not pressed. In view of the submission of the Ld. Counsel the additional ground raised by the Assessee is dismissed as not pressed. 4. Coming to the merits, the Ld. Counsel for the assessee in so far as ground no.2 of grounds of appeal, with respect to addition on account of payment of royalty is concerned it is submitted that an identical issue came up for adjudication before the Tribunal in assessee’s own case for the assessment years 2006-07 onwards and the latest order of the Tribunal is for the AY 2017-18 in ITA No.496/Del/2022 dated 24/07/2024 and the Tribunal following its earlier years orders deleted the adjustment made by the Assessing Officer in respect of payment of royalty. Ld. Counsel further referring to page 41 of the Paper Book submitted that the Hon’ble High Court affirmed the order of the Tribunal for the assessment years 2007-08, 2008-09 and 2009-10. ITA Nos.1668/Del/2022 & 3686/Del/2024 4 5. On the other hand, Ld. DR supported the orders of the authorities below. 6. Heard rival submissions, perused the orders of the authorities below. In so far as the addition towards royalty is concerned we observed that the issue is a recurring issue in assessee’s own case and the Tribunal for the assessment years 2006-07 onwards decided that no addition can be made in respect of royalty payment. We find that the Tribunal for the immediately preceding AY i.e. 2017-18 in so far as royalty addition is concerned decided the issue in favour of the assessee. The Tribunal observed as under: - “10. The Ground No. 3 and its sub grounds pertain to addition of Rs. 70,12,25,209/- on account of payment of royalty/consideration for use of trademark and know- how. 11. The brief facts are that, the assessee has entered into trademark and know-how license agreement with Benetton Group S.r.l, it's A.E. As per the License Agreement, the assessee pays royalty to its AE for the use of trademark and know-how at5% on sale of products which are sold through stores owned by franchises,2.5% on the sale of products which are sold through owned stores and 50% of gross royalty earned by the assessee from its authorized sub licenses. For the purpose of determining the Arm's Length Price for payment of royalty, the assessee has adopted CUP method. Three comparable agreements were selected for royalty payment which averaged out to be 6.08%. Since the effective royalty paid by the assessee during the year under consideration was 4.81% on sales, the transaction was held to be at Arm's Length. ITA Nos.1668/Del/2022 & 3686/Del/2024 5 12. The Ld. TPO has applied Transactional Net Margin Method (TNMM) on entity level and disregarded Comparable Uncontrolled Price (CUP). The TPO also included amount of third party AMP Expenses while computing the amount of adjustment for royalty, applied the TNMM Method and determined the Arm's Length Margin at 5.42%. The said action of the TPO has been confirmed by the DRP/A.O vide order impugned. 13. The Ld. Counsel for the assessee submitted that the Ld. TPO/AO/DRP have treated selling and distribution expenses as part of advertising and marketing expenses, incorrectly associated profitability with payment of royalty. The ld. Counsel further submitted that the authorities have erroneously found that marketing was responsibility of the A.E and applied an ad-hoc margin of 10%on advertising and marketing spend. He also submitted that, the authorities have incorrectly computed the net operating margin of the assessee as well as of the comparable companies by not granting benefit of economic adjustment as required under Rule 10B (2) and Rule 10B(1)(e) of the Rules. 14. The Ld. Counsel for the assessee further submitted that, the payment of royalty was held to be Arm's Length in the earlier years. For the Assessment Year2006-07 in Assessee's own case, the Coordinate Bench of the Tribunal in ITA No. 3829/Del/2010 has treated the payment of royalty to be Arm's Length by rejecting the application of TNMM. Even in the Assessment Year 2007-08, 2008-09, 2009-10, 2011-12 to 2012-13, the Tribunal has decided the said issue in favour of the assessee. He further submitted that, for the Assessment Year 2010-11, the very same addition has been deleted by CIT(A) and in the Assessment Year 2016-17 no adverse inference taken by the TPO. The Ld. Counsel for the assessee has taken us through the various judicial pronouncements and contended that the Ld. TPO has erred in proposing the adjustment on account of Arm's Length Price for payment of royalty. 15. Per contra, the Ld. DR relied on the orders of the TPO/DRP/A.O, and took support of the “Trade-Mark and Know-how License Agreement” entered by the assessee ITA Nos.1668/Del/2022 & 3686/Del/2024 6 and justified the orders of the TPO/DRP/A.O. The Ld. DR also submitted that the steps for benchmarking laid out by the Hon’ble Delhi High Court in Sony Ericcson Mobile Communications v.CIT (2015) are followed in this case. Further, submitted that in all the previous years of the order of the Tribunal, the issue of advertisement being part of the royalty payment was not there. It was further submitted that the advertisement expenses forming part of the royalty payment based on the “Trade-Mark and Know-how License Agreement” has never been dealt with by the Tribunal, for the first time the issue of advertisement being part of the royalty payment has come for consideration before the Tribunal. Therefore, submitted that this issue is not covered in favour of the assessee. 16. We have heard the rival submissions. The issue of benchmarking the royalty payment was litigated in AY 2006-07 (ITA No.3829/Del/2010),in A.Y. 2007-08 & 2008- 09, (Revenue Appeal ITA No. 457and 453/Del/2013), in A.Y. 2009-10 (ITA No. 4329/Del/2014 and 4229/Del/2014), in A.Y. 2011-12 (ITA No. 31/Del/2017), in A.Y. 2012-13 (ITA No.1091/Del/2018), wherein the payment of royalty was held to be at arm’s-length by coordinate benches of this Tribunal. 17. In the present year, the TPO added advertisement expenses (including a mark-up of 10%) to the payment made by assessee in accordance with the Trademark and Know-how License Agreement (“License Agreement”), in addition to the royalty payment. This was done because Clause 13 of the License Agreement, quoted below, mandates the assessee to advertise the licensed products. “13. Advertising 1. The LICENSEE shall continuously advertise the Licensed products in a way attractive to the consumers and in keeping with the trends of the market, by way of photo reportage, pictures, scripts ,texts, other materials and services made available by the LICENSOR with a view to both assuring as uniform as possible a world-wide image ITA Nos.1668/Del/2022 & 3686/Del/2024 7 of the Licensed Trademarks and the Benetton Group and allowing the LICENSEE to avail itself of the worldwide terms and arrangements for the time being in force between Benetton Group and its advertising agencies 2. The LICENSEE shall previously submit to the LICENSOR for approval all data and information related to the media intended to be used (such as outdoor, tv, radio, the internet and press), and the relevant costs and expenses to be paid by the LICENSEE and shall not place any such campaign or action in hand without having secured the previous written approval of the LICENSOR with respect thereto. 3. in any case, the LICENSEE shall submit to the prior written approval of the LICENSOR all data and information regarding any advertising campaigns intended to be pursued (and shall not place any such campaign in hand, without having secured the prior written approval of the LICENSOR with respect thereto) in order to assure an image of the Licensed Trademarks and of the Benetton Group in the Territory uniform to the image of the Licensed Trademarks and the Benetton Group in the rest of the world.” 18. Further, the TPO rejected the benchmarking of the assessee (CUP method) and proceeded to benchmark the transaction using Transactional Net Margin (TNMM) Method. 19. However, the Coordinate Benches have taken a consistent view in the previous years, upholding the CUP method used by the assessee for benchmarking royalty and rejecting an entity level TNMM approach. The Coordinate Bench of this Tribunal in ITA No. 3829/Del/2010 for A.Y 2016-17, vide order dated 30/11/2021 held as under: “7. We have heard rival contentions, perused the material available on record. The first and foremost question in this case is to determine ITA Nos.1668/Del/2022 & 3686/Del/2024 8 whether the action of TPO in undertaking entity level benchmarking by TNM method combining of the international transactions is justifiable or the TP analysis provided by assessee, based on “transaction to transaction” basis in respect of different segments should be adopted. 7.1. From the facts mentioned above, it is clear that assessee’s manufacturing export activities; buying/sourcing and commission earning activities are independent of each other. Each activity has different factors in respect of source, identification of vendors, merchandise, designs quality control, handling etc. The FAR analysis in each of the activity will have distinct and separate considerations. 7.2. We, find merit in the argument of the learned counsel that the TPO should have accepted the method of assessee’s benchmarking analysis on the basis of transaction to transaction basis in respect of different segments of assessee’s international transactions with associated enterprises. In our view, Assessee’s functions, risk and assets FAR considerations, which are given in the above table, deserves to be merited. TPO did not appreciate the Assessee’s transactions correctly and applied entity level benchmarking on TNMM method by combining Assessee’s all international transactions with associated enterprise without justification. 7.3. Our view is supported by ITAT judgments - Mumbai Bench in the cases of UCB India (P) Ltd. Vs. ACIT (supra); and ACIT v. Star India Ltd. (supra); and Kolkata Bench in the case of Development Consultants (P) Ltd. (supra). All these cases clearly lay down that ALP would be determined based on the nature of service provided by assessee for each class of transaction based on various factors and analysis. In the case of Star India Ltd. (supra), also the TPO treated all the activities of the assessee as ITA Nos.1668/Del/2022 & 3686/Del/2024 9 one and determined the ALP at entity level without appreciating that one cannot compare the FAR of a principal and agent on same footing. 7.4. In our view, in the assessee’s case there are different segmental activities, which are independent of each other. They are required to be analyzed on transaction to transaction basis and not by combining all activities. Consequently, we uphold the assessee’s method of ALP.” 20. Following the principle of consistency, the TNM Method is rejected in the current year too, and the Assessee’s use of CUP is upheld. Accordingly, following the co-ordinate Bench orders, the issue of royalty is decided in favour of the assessee and against the Revenue.” 7. Facts being identical following the order of the Tribunal for the immediately preceding assessment year ground no. 2 and sub-grounds are allowed. 8. Coming to ground no.3 of grounds of appeal i.e. in respect of addition on account of consultancy services, reimbursement of advertisement expenses and IT cost allocation the Ld. Counsel submits that the Tribunal decided these issues also for the AY 2017- 18. 9. Ld. Counsel further submits that in so far as the consultancy services are concerned the orders of the Tribunal for the AY 2007-08, 2008-09 and 2009-10 stand confirmed by the Hon’ble Delhi High Court. ITA Nos.1668/Del/2022 & 3686/Del/2024 10 10. The Ld. DR placed reliance on the orders of the TPO/DRP. 11. Heard rival submissions, perused the orders of the authorities below and the order of the Tribunal in assessee’s own case. On perusal of the Tribunal’s order for the AY 2017-18, we observe that identical issues came up for consideration and the Tribunal held as under: - “22. Ground No. 4 and its sub grounds pertaining reimbursement of advertisement expenses of Rs.1,24,46,492/-, IT Cost Allocation of Rs. 30,12,824/- and Consultancy Services HR Cost of Rs. 56,70,203/-. Reimbursement of Advertisement expenses 23. During the year under consideration, the assessee has reimbursed advertising expenses incurred on its behalf to its AE. The assessee submitted before the TPO that these expenses were incurred by its AE with respect to Indian catalogue and brochure, Indian advertisement campaigns and related travelling and accommodation expenses of models for advertisement campaigns etc. The assessee has applied the CUP Method to benchmarking the said transaction. The Ld. TPO found that all the third-party invoices were in the name of the associated enterprises namely Benetton Group Srl, Italy, and there was no evidence of the purported services by the assesses company. The assessee in its letter 18/01/2021 submitted before the TPO that the advertisement expenses are supported by 100% third party back-to-back invoices. The Ld. TPO has also on perusing the document found that all the third-party invoices are in the name of associated enterprises. The TPO concluded that there is no evidence of receipt of service as the third party invoices should have been in the name of the assessee company if at all the payments were in the nature of reimbursement. The ld. DRP upheld this finding of the TPO. ITA Nos.1668/Del/2022 & 3686/Del/2024 11 24. Having considered the rival stands on this issue, we find that the lower authorities have misdirected themselves and not appreciated the factual matrix sought to be canvassed by the Assessee. Notably, the assessee submitted before the lower authorities that the expenses in question were incurred for promotion of products of the assessee and in order to meet the high quality advertisement and promotion material which are of global standards. Such expenses were met through the foreign AE. It was submitted that expenses incurred on year to year basis as per actual business requirement of the assessee. According to the assessee, the same were in the nature of pass through costs paid by its AE and thereafter reimbursed by assessee at the request of its AE. Before us, Ld. Representative for the assessee has referred the Pages 754 to 881 of the Paper Book Vol.II wherein, he placed the copy of Submission dated 25.11.2020 addressed to the TPO inter alia, including the summary of invoices raised by its AE Benetton Group SRL to the assessee which are supported by 100% third party back-to-back invoices. The said material has been referred to show that the amount reimbursed by the assessee to its AE were on No Margin Basis and were on account of advertisement expenses relating to business of assessee. 25. The Ld. DR, though defended the action of the lower authorities, but has not controverted the material referred to by the assessee before us, which ostensibly was also before the lower authorities. 26. We have perused the order of the TPO, more specifically, para 4.3 of his order, whereby he has questioned the reason for the 3rd parties to issue bills in the name of the assessee and for that reason according to him the receipt of services is not proved. In fact the observations of the TPO in our view is fallacious in as much as the case of the assessee is that the 3rd party had executed the work on account of advertisement relating to Assessee’s business and the expenditure thereof was met by Assessee’s AE on behalf of the assessee. The Assessee’s AE raised back-to-back invoices on the assessee for such expenses, which is clearly fortified by the material referred to before us, which also shows that ITA Nos.1668/Del/2022 & 3686/Del/2024 12 there is no margin earned by the AE. Be that as it may, the TPO has no locus-standi to opine on the necessity or otherwise for the incurrence of expenditure. In other words, the TPO does not has a jurisdiction to question the commercial expediency of the assessee have incurred such expenditure and his jurisdiction extends only to benchmark the transaction in terms of mandate of Section 92(1) of the Act. The aforesaid proposition is well founded in light of the Hon’ble Delhi High Court decision in the case of CIT vs. EKL Appliances Ltd. 345 ITR 241. Therefore, in our view, the approach of the TPO, which has also been thereafter approved by the Ld. DRP is contrary to the legal as well as the factual position and the transfer pricing adjustment made thereupon, is unsustainable. We hold accordingly. IT Cost Allocation 27. The assessee claimed to have received information technology support services from its AE in the nature of Computer Assistance Designing Techniques including software like CAD, Orchidie, Iris, Citirix, Rtbenet etc. which were used by it in its manufacturing process. The AE charged BIPL for the use of the above software on cost- to-cost basis. The TPO determined the ALP of these intra- group services to be zero as the assessee could not provide any evidence of requisition or receipt or cost- benefit analysis. The ld. DRP upheld the order of the TPO. 28. Before us, the Ld. AR submitted that the Coordinate Bench in Assessee’s own case for AY 2009-10 and CIT(A) for AYs 2007-08 and 2008-09 decided this issue in the Assessee’s favour. Ld. DR relied on the order of the TPO. 29. We have gone through the record in the light of the submissions made on either side. Since the facts are similar and issue is identical, we find no reason to take a different view for this assessment year. While respectfully following the consistent view taken by the Tribunal in Assessee’s own case for the Assessment Years 2009-10, we hold that the impugned addition cannot be sustained. We therefore direct the TPO/AO to delete the adjustment made on account of IT Cost Allocation. ITA Nos.1668/Del/2022 & 3686/Del/2024 13 Consultancy Services- HR Cost 30. The assessee hired the services of an employee (Mr. Daniel Hueng) to provide consultancy with regards to quality control. Salary and perquisites of this employee was paid by the AEs and reimbursed by BIPL on a cost-to- cost basis. The TPO determined the ALP of this reimbursement to be zero as the assessee could not provide any documentary evidence of exclusive receipt of services from employee and categorized his services to be in the nature of shareholder service. The ld. DRP upheld the order of the TPO. 31. Before us, the Ld. AR submitted that the Tribunal in Assessee’s own case for the Assessment Years 2007-08, 2008-09 and 2009-10, deleted the adjustment on account of similar issue of expatriate cost. 32. We have heard the rival submissions. The assessee has availed consultancy services from an employee based out of Hong Kong and has reimbursed the salary and related expenses of this employee to its AE. Since this is similar to the issue of expatriate cost in previous years, we find no reason to take a different view for this assessment year. While respectfully following the consistent view taken by the Tribunal in Assessee’s own case for the Assessment Years 2007-08, 2008-09 and 2009-10, we hold that the impugned addition cannot be sustained. We, therefore, direct the TPO/AO to delete the adjustment made on this issue. Thus, Ground 4 and sub-grounds are partly allowed in favour of the assessee.” 12. Facts being identical. Respectfully following the decision of the Tribunal in Assessee’s own case for the AY 2017-18. Ground no. 3 and sub-grounds of ground of appeal are allowed. 13. Coming to Corporate Tax grounds, ground no.5 of grounds of appeal is with respect to not allowing deduction on account of ITA Nos.1668/Del/2022 & 3686/Del/2024 14 reversal of provision for contingent Income tax liability credited to profit and loss account and disallowed earlier in the year of creation that the time it was debited to profit and loss account. Ld. Counsel for the assessee submits that during the AY 2012-13 Assessee had created provision of Rs.30 lakhs on account of contingent demand for Income tax matter relating to AY 2003-04 which was remanded back by the Appellate Authority. Accordingly in the AY 2012-13 such provision was suo moto disallowed by the Assessee as can be seen from the computation of income for the AY 2012-13 placed at page 869 of the Paper Book, Vol.-II. However, the DRP upheld the action of the Assessing Officer. Ld. Counsel submits that in the draft assessment order it is observed by the Assessing Officer that as the claim of Income tax is not allowable deduction the Assessee suo moto disallowed the same during the AY 2012-13 and, therefore, the contention of the Assessee that the provision made on account of Income tax is no longer payable hence reversed the same during the year under consideration and if not allowed the same then would be double taxation is not tenable as the claim of Income tax is basically not allowable expenditure as per provisions of the Act. The Ld. Counsel for the assessee submits that the computation of income for AY 2012-13 at page 869 of the Paper Book clearly reflects that the ITA Nos.1668/Del/2022 & 3686/Del/2024 15 said amount had been added back while computing the income for that assessment year. In the year under consideration since there was a reversal of the said provision in the books consequently while computing the total income such reversal was given effect to reduce from the total income, otherwise it tantamount to double addition. The Ld. Counsel submits that this was not an issue whether Income tax provision can be claimed as deduction u/s 37 of the Act. Therefore, it is submitted that the National Faceless Assessment Center (NFAC) clearly misguided itself in not allowing the same as deduction. Reliance was placed on the following judicial precedents in support of the above contentions: - 1. “JCIT Vs. M/s Texas Instruments (India) Pvt. Ltd. (ITA No.1958/Bang/2018) (Ban Trib); 2. ITO Vs. Scheme A1 of ARCIL CPS 002 XI Trust [2020] 119 taxmann.com 216; 3. Reliance Lifestyle Holdings Ltdd. Vs. DCIT (ITA No.6797/Mum/2014) (Mum Trib); 4. Dalmia Dairy Vs. Commissioner of Income Tax [2008] 172 taxman 44 (Delhi HC); 5. Supreme Build Cap (P) Ltd. Vs. Assistant Commissiner of Income Tax [2020] 117 taxman.com 848 (Del Trib); 6. Mahaveer Kumar Jain Vs. Commissioner of Income Tax, Jaipur [2018] 92 taxmann.com 340 (SC); ITA Nos.1668/Del/2022 & 3686/Del/2024 16 7. Laxmipat Singhania Vs. Commissioner of Income Tax [1969] 72 ITR 291 (SC); 8. Commissioner of Income Tax Vs. Murlidhar Jhawar and Purna Ginning and Pressing Factory [1966] 60 ITR 95 (SC).” 14. Ld. Counsel further submits that similar is the position with regard to ground no.6 i.e. in respect of provision for LBT which is in the nature of freight/octroi tax. Ld. Counsel submits that assessee created provision in the AY 2016-17. In this regard it is submitted that such LBT was paid by store partner in Maharashtra and then reimbursed by the Assessee on receipt of challan of tax paid in Maharashtra. Since such provision is ad hoc provision same was disallowed as and when such provision was created in AY 2016-17 as can be seen from page 871 of Paper Book, wherein the computation of income for AY 2016-17 was placed. Ld. Counsel submits that in view of the later developments i.e. introduction of goods and service tax and Maharashtra Government introduced compensation to local Authorities Act to compensate local tax authorities for replacement of LBT/Octroi by GST, such liability was no longer payable/reimbursable to store partners of the Assessee. The same was reversed in the AY 2018-19 and accordingly claimed as an allowance. However, the NFAC in its draft assessment order disallowed the same on the ground that the liability is no more ITA Nos.1668/Del/2022 & 3686/Del/2024 17 required to be paid is not allowable as expenditure during the year under consideration on reversal basis. Ld. Counsel submits that thus the provision which was created in AY 2016-17 was never claimed as deduction since it was added back in the computation of income. Since in the assessment year under consideration the provision was reversed in the books consequent adjustment was made in the tax computation otherwise it would have resulted in a double addition. 15. On the other hand, Ld. DR submitted that the issues may be restored to the Assessing Officer for verification. 16. Heard rival submissions, perused the orders of the authorities below. We find considerable merit in the submissions of the Ld. Counsel for the assessee. Therefore, the issues in ground nos. 5 & 6 are in principle allowed subject to verification by the Assessing Officer. The Assessing Officer while passing the consequential order may verify the contentions of the assessee before allowing claims of the Assessee. 17. Coming to ground no.7 Ld. Counsel submits that in the intimation issued u/s 143(1) of the Act, it was stated that amount of disallowance u/s 37 of the Act reported in tax audit report amounts to Rs.3,93,94,745/- whereas amount of disallowance u/s 37 of the ITA Nos.1668/Del/2022 & 3686/Del/2024 18 Act made in income tax return amounts to Rs.2,03,74,846/- accordingly CPC has made an adjustment for the differential amount of Rs.1,90,19,899/-. Further, it was also stated that amount of disallowance u/s 43B of the Act reported in tax audit report amounts to Rs.12,87,12,834/- whereas amount of disallowance u/s 43B of the Act made in income tax return amounts to Rs.12,81,42,988/- accordingly CPC has made an adjustment for the differential amount of Rs.5,69,846/-. 18. Ld. Counsel submits that no directions were issued by the Hon’ble DRP since this issue was not agitated before them. Ld. Counsel submits that the assessee has filed rectification petition u/s 154 of the Act before the Assessing Officer and, therefore, it is requested that a direction may be given to the AO to dispose of the 154 application filed by the Assessee. 19. Heard rival submissions. Since the Assessee has filed 154 application before the AO, we direct the AO to examine the contentions of the Assessee in the rectification petition and the same be disposed of as expediously as possible. Ground No.7 is allowed for statistical purpose. ITA Nos.1668/Del/2022 & 3686/Del/2024 19 20. Coming to the appeal for the AY 2020-21 the grounds raised by the Assessee are identical to the grounds raised for the AY 2018-19. Therefore, the decision taken for the AY 2018-19 in respect of ground nos. 2 and sub-grounds, 3 and sub-grounds applies mutatis mutandis to the appeal for the AY 2020-21. Coming to ground no.5 of grounds of appeal for the AY 2020-21 the Assessee challenged the order of the Assessing Officer in wrongly computing the carry forward losses. This ground is restored to the file of the AO for examining afresh in accordance with law. This ground is allowed for statistical purpose. 21. In the result, appeals of the Assessee for the assessment years 2018-19 and 2020-21 are partly allowed as indicated above. Order pronounced in the open court on 23.04.2025 Sd/- Sd/- (RAMIT KOCHAR) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 23.04.2025 Kavita Arora, Sr. P.S. Copy forwarded to:- 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI "