ASIAN PAINTS LTD, MUMBAI V. ADDL CIT LTU, MUMBAI

ITA 2178/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5088 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 16-12-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 02-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SINGH; AJEET KUMAR JAIN
• Assessee Lawyers: RAHUL K HAKANI
• Keywords: Capital asset; Depreciation; Transfer pricing; International transaction; Question of law; Revenue expenditure; Capital expenditure
• Section: 92B

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNALK BENCH, MUMB AI . .. . . .. . , ,, , ! ! ! ! , ' ' ' ' # $ % # $ % # $ % # $ %, ,, , & ! & ! & ! & ! ' ' ' ' BEFORE SHRI P.M. JAGTAP, AM AND SHRI AMIT SHUKLA, J M ITA NO. 2126/MUM/2012 ASSESSMENT YEAR-2007-05 ADD. CIT, LTU, 28 TH FLOOR, CENTRE-1, WORLD TRADE CENTRE, CUFFE PARADE, MUMBAI-400005 ( ( ( ( / VS. M/S ASIAN PAINTS LTD. ASIAN PAINTS HOUSE, 6A, SHANTI NAGAR, SANTACRUZ (EAST) MUMBAI-400055 !) ./ PAN :AAACA3622K ( )* / APPELLANT ) .. ( +, )* / RESPONDENT ) ITA NO. 2178/MUM/2012 ASSESSMENT YEAR-2007-08 M/S. ASIAN PAINTS LTD. ASIAN PAINTS HOUSE, 6A, SHANTI NAGAR, SANTACRUZ (EAST) MUMBAI-400055 ( ( ( ( / VS. ADD. CIT, LTU, 28 TH FLOOR, CENTRE-1, WORLD TRADE CENTRE, CUFFE PARADE, MUMBAI-400005 !) ./ PAN :AAACC4481E ( )* / APPELLANT ) .. ( +,)* / RESPONDENT ) )* - . / APPELLANT BY : SHRI K. SHIVRAM, AND SHRI RAHUL K. HAKANI !' - . / REVENUE BY: SHRI AJEET KUMAR JAIN AND SHRI O.P. SINGH (' - / DATE OF HEARING : 16/12/2013 /01 - / DATE OF PRONOUNCEMENT : 20/12/2013 $ $ $ $ / ORDER PER P.M.JAGTAP, AM :- . .. . . .. . , ,, , ! ! ! ! THESE TWO APPEALS, ONE FILED BY THE ASSESSEE BEING ITA NO. 2178/MUM/2012 AND THE OTHER FILED BY THE REVENUE BE ING ITA NO.2126/MUM/2012, ARE CROSS APPEAL WHICH ARE DIRECT ED AGAINST THE ORDER OF THE LD. CIT(A)-15, MUMBAI, DATED 20.01.201 2. ITA NO.2126/MUM/2012 & OTHER CASES ASIAN PAINTS LTD. 2 2. IN THE FIRST GROUND RAISED IN ITS APPEAL, THE RE VENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN DELETING THE DISALL OWANCE OF RS.777.80 LAKH MADE BY THE AO ON ACCOUNT OF EXPENDITURE INCURRED B Y THE ASSESSEE ON TELEVISION ADVERTISEMENT IN RELATION TO CORPORATE IMAGE/BRAND. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALES OF PAINTS A ND ENAMELS. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION W AS FILED BY IT ON 26.10.2007 DECLARING TOTAL INCOME OF RS.405,67,52,1 70/-. IN THE PROFIT AND LOSS ACCOUNT FILED ALONGWITH THE SAID RETURN, E XPENDITURE INCURRED ON SALES PROMOTION AND ADVERTISEMENT AMOUNTING TO RS.1 109.81 LAKHS WAS DEBITEDD BY THE ASSESSEE WHICH WAS INCLUSIVE OF THE EXPENDITURE OF RS.30,76,20,599/- INCURRED ON TELEVISION ADVERTISEM ENT. ON EXAMINATION OF THE DETAILS OF EXPENDITURE INCURRED BY THE ASSESSEE ON SALES PROMOTION AND ADVERTISEMENT, IT WAS NOTICED B Y THE AO THAT THE EXPENDITURE INCURRED ON TELEVISION ADVERTISEMENT TO THE EXTENT OF RS. 10.36 CRORES WAS RELATED TO CORPORATE BRAND IMAGE. ACCORDING TO HIM, THE SAID EXPENDITURE WAS OF CAPITAL NATURE AND TREA TING THE SAME AS CAPITAL EXPENDITURE, HE ALLOWED ONLY DEPRECIATION T HEREON WHICH RESULTED IN DISALLOWANCE OF RS.777.80 LAKHS. ON APPEAL, TH E LD. CIT(A) DELETED THE SAID DISALLOWANCE MADE BY THE AO FOR THE FOLLOW ING REASONS GIVEN IN HIS IMPUGNED ORDER. I. IN THE FACTS AND OF THE CASE THE APPELLANT HAS INCU RRED EXPENSES FOR ITS ADVERTISEMENT AND SALES PROMOTION EXPENSES AT RS.1109.81 LACS WHICH I S 3.30% OF THE GROSS SALES VIS--VIS SUCH PERCENTAGE BEING AT 3.28% IN THE IMMEDIATE PRECEDIN G YEAR. II. THE APPELLANT DURING THE YEAR UNDER CONSIDERATION H AS INCURRED EXPENSES OF RS.10.36 CROSS TOWARDS ASIAN PAINTS CORPORATE UNDER CAPTIONS CHEET AH, COLOUR WEEK, COLOUR WEEK GIRLS, COLOUR WEEK TWINS AND RETURN OF CUTTING SHUTTING. IT IS THIS AMOUNT WHICH HAS BEEN TREATED BY THE AO AS CAPITAL EXPENDITURE. ITA NO.2126/MUM/2012 & OTHER CASES ASIAN PAINTS LTD. 3 III. THE APPELLANT HAS PLACED RELIANCE ON LARGE NUMBER O F CASES WHEREIN IT IS HELD THAT IN THE CONSUMER INDUSTRY, THE ADVERTISEMENT EXPENSES HAVE TO BE INCURRED REGULARLY FOR KEEPING THE BRAND NAME IN THE NOTICE OF THE PUBLIC AND SUCH EXP ENSES DOES NOT AMOUNT TO CREATING ANY NEW BRAND AND ARE RECURRING EXPENSES NECESSARY FOR THE PURPOSE OF BUSINESS. IV. EVEN IN THE CASE LAWS RELIED UPON BY THE AO ALSO HA VE HELD THAT IF THE EXPENDITURE IS IN RESPECT OF AN ONGOING BUSINESS OF THE ASSESSEE AND THERE IS NO ENDURING BENEFIT IT CAN BE TREATED AS REVENUE EXPENDITURE. IT IS FURTHER NOT THE CAE THAT HAS BEEN MADE OUT THAT BY INCURRING SUCH EXPENDITURE BY THE APPELLANT ANY NEW CAPITAL ASSET HAS COME INTO EXISTENCE FROM WHICH THE APPELLANT IS GOING TO DRAW AND BENEF IT OF ENDURING NATURE. SUCH EXPENDITURE I THE FACTS OF THE CASE WOULD BE CONSIDERED TO BE FOR RUNNING THE BUSINESS OR WORKING IT WITH A VIEW TO PRODUCE PROFIT AND ACCORDINGLY WOULD BE IN THE NATURE OF REVENUE EXPENDITURE. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS AGREED BY THE LD. REPRESENTATIVES OF BOTH THE SIDES, THIS ISSUE IS SQUARELY COVERED IN F AVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL DATED 29.10.2013 PASSED I N ASSESSEES OWN CASE FOR A.Y. 2006-07 IN ITA NO. 7801/MUM/2010 WHERE IN A SIMILAR DISALLOWANCE WAS MADE ON ACCOUNT OF THE TELEVISION ADVERTISEMENT EXPENDITURE INCURRED BY THE ASSESSEE ON CORPORATE B RAND/IMAGE WAS HELD TO BE UNSUSTAINABLE BY THE TRIBUNAL FOR THE FO LLOWING REASONS IN PARAGRAPH NO. 28 OF ITS ORDER:- 28. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E RELEVANT FINDINGS OF THE ASSESSING OFFICER AS WELL AS THE MATERIAL AVAILABLE ON RECORD. IT IS NOT DISPUTED THAT THE SAID EXPENDITURE ON THE ADVERTISEMENT HAS BEEN INCURRED IN THE RELEVANT ASSESSMENT YEAR ONLY AND IT IS FOR THE BUS INESS PURPOSE ONLY, EXCEPT FOR THAT THE A.O. HAS TREATED PART OF IT AS CAPITAL EXP ENDITURE. THE ASSESSING OFFICER HAS ALLOWED VARIOUS EXPENDITURES INCURRED FOR TV AD VERTISEMENT EXPENSES RELATING TO PRODUCTS AND HAS DISALLOWED THE ADVERTI SEMENT EXPENSES ON CORPORATE BRAND, THE DETAILS OF SUCH EXPENDITURE WE RE AS UNDER: ITA NO.2126/MUM/2012 & OTHER CASES ASIAN PAINTS LTD. 4 BRAND CAPTION EXPENSES(NET) TOTAL EXPENSES EXTERIORS CHOTE SARKAR 7,01,20,716 OTTAM THULLAL 38,09,870 TIME PROOF 3,52,07,073 10,91,37,659 CORPORATE CUTTING SHUTTING 4,42,00,096 APSS 11,05,000 CHEETAH 93,52,638 COLOUR WEEK VIGNETTE 1,23,250 5,46,57,734 ROYALE BIRTHDAY 2,38,05,182 PRECIOUS 3,74,12,626 6,12,17,808 FROM THE AFORESAID DETAILS, HE HELD THAT THE ADVER TISEMENT EXPENDITURE INCURRED UNDER THE HEAD CORPORATE BRAND IS TO BE DISALLOWED AS IT RELATES TO ENDURING BENEFIT. SUCH A DISTINCTION MADE BY THE AS SESSING OFFICER, IN OUR OPINION IS WHOLLY MISPLACED, BECAUSE THE EXPENDITUR E ON ACCOUNT OF ADVERTISEMENT EVEN FOR THE PRODUCT BRANDS DOES HIGH LIGHT THE NAME OF THE COMPANY. THE BRAND NAME OF THE COMPANY IS EMBEDDED IN THE PRODUCT AND THE BRAND VALUE OF THE PRODUCT IS ALSO THE BRAND VALUE OF THE COMPANY, WHO OWNS THE PRODUCT. IF ANY ADVERTISEMENT DOES NOT GIVE THE DETAILS OF THE PRODUCT THIS DOES NOT IPSOFACTO MEANS THAT IT IS NOT FOR THE PR OMOTION OF PRODUCT. THE PRODUCT IN THE MARKET IS KNOWN BY ITS BRAND WHICH I S OWNED BY THE COMPANY WHICH CREATES THE PRODUCT. MAKING SUCH KIND OF A DI STINCTION, THAT PART OF THE ADVERTISEMENT IS FOR THE PRODUCT WHICH IS REVENUE I N NATURE AND PART OF THE ADVERTISEMENT FOR THE CORPORATE BRAND IS CAPITAL EX PENDITURE IS NOT APPROPRIATE. EVEN IF THERE IS A PROMOTION OF A CORPORATE BRAND, IT DIRECTLY FACILITATES THE BUSINESS OF THE ASSESSEE AND IN THE RESULT HAS AFFE CT ON THE SALES AND PROFITABILITY OF ASSESSEE S BUSINESS. THE BRAND BUILDING OF THE CORPORATE IN SUCH ADVERTISEMENT IS INHERENT AND IT CANNOT BE INFERRED THAT SUCH AN ADVERTISEMENT GOES TO CREATE A FIXED CAPITAL. EVEN IF THERE IS SO ME ENDURING BENEFIT ON ACCOUNT OF BRAND BUILDING THROUGH ADVERTISEMENT THEN ALSO, IT CANNOT BE HELD THAT IT IS ON CAPITAL FIELD. IN THIS ERA, ADVERTISEMENT CREATE S ON IMPRESSION OF THE BRAND AND PRODUCT IN THE MIND OF THE CONSUMER AND IF THER E IS NO FREQUENT ADVERTISEMENT OF BRAND OR THE PRODUCT, IT IS VERY D IFFICULT TO PUSH SALES IN THE MARKET. THE ADVERTISEMENT ON THE TV, WHETHER BE IT FOR THE BRAND OR THE PRODUCT, ONLY GOES TO ENHANCE THE SALES AND PROFITA BILITY OF THE ASSESSEE COMPANY AND, HENCE, THE SAME IS TO BE HELD AS REVEN UE IN NATURE. ACCORDINGLY, WE HOLD THAT, SUCH AN EXPENDITURE INCURRED ON ADVER TISEMENT ON TV HAS TO BE ALLOWED AS REVENUE EXPENDITURE. ITA NO.2126/MUM/2012 & OTHER CASES ASIAN PAINTS LTD. 5 5. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDER ATION AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THAT OF A.Y. 2006-07, WE RESPECTFULLY FOLLOW THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL FOR A.Y. 2006-07 AND UPHOLD THE IMPUGNED ORDER OF TH E LD. CIT(A) DELETING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF EXPENDITURE INCURRED ON TELEVISION ADVERTISEMENT IN RELATION TO CORPORATE BRAND/IMAGE. GROUND NO. 1 IS OF THE REVENUES APPE AL IS ACCORDINGLY DISMISSED. 7. IN GROUND NO. 2, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITION OF RS.2.44 CRORES M ADE BY THE AO ON ACCOUNT TRANSFER PRICING ADJUSTMENT IN RESPECT OF C OMMISSION/FEES FOR GUARANTEE GIVEN BY THE ASSESSEE-COMPANY TO ITS AES . 8. THE ASSESSEE COMPANY HAD GIVEN GUARANTEE TO THE BANK OF SINGAPORE IN ORDER TO ENABLE THE SAID BANK TO PROVI DE LOANS TO M/S BERGER INTERNATIONAL LTD., SINGAPORE, ASSOCIATE ENT ERPRISES (AE) OF THE ASSESSEE. THE SAID GUARANTEE GIVEN FOR A SUM OF RS. 77.32 CRORES IN TERMS OF INDIAN RUPEES WAS OUTSTANDING DURING THE YEAR U NDER CONSIDERATION FOR WHICH COMMISSION/FEES AT 0.20% WAS CHARGED BY TH E ASSESSEE. THE ASSESSEE HAD ALSO GIVEN A SIMILAR GUARANTEE ON BEHA LF OF THE ANOTHER AE IN AUSTRALIA NAMELY ASIAN PAINTS PTY. LTD. FOR RS.4 0.80 LAKHS. ALTHOUGH NO COMMISSION/FEES WAS CHARGED BY THE ASSESSEE FOR THIS GUARANTEE, SUCH COMMISSION/FEES AT THE RATE OF 0.20% WAS OFFERE D BY THE ASSESSEE WHILE CALCULATING ARMS LENGTH PRICE. WHEN THESE T RANSACTIONS INVOLVING GIVING GUARANTEES FOR AES WERE REFERRED BY THE AO TO THE TPO, THE LATTER DETERMINED THE ARMS LENGTH RATE OF GUARANTEE COM MISSION GIVEN BY THE ASSESSEE FOR ITS AES AT THE RATE OF 3% RELYING ON T HE SAME DATA AS USED ITA NO.2126/MUM/2012 & OTHER CASES ASIAN PAINTS LTD. 6 BY HIM IN A.Y. 2006-07 TO DETERMINE THE ARMS LENGTH RATE OF GUARANTEE COMMISSION AT 3%. ACCORDINGLY, ADDITION OF RS.2.44 CRORES WAS MADE BY THE AO/TPO ON ACCOUNT OF TP ADJUSTMENT IN RESPECT O F COMMISSION/FEES FOR THE GUARANTEES GIVEN BY THE ASSESSEE FOR ITS AE S. ON APPEAL, THE LD. CIT(A) DELETED THE ADDITION MADE BY THE AO ON THIS ISSUE FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 9.3 OF HIS IMPUGNED ORDER :- 9.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND SUB MISSIONS OF THE APPELLANT AS AGAINST THE OBSERVATION/FINDINGS OF THE AO/TPO IN THEIR ORDER. THIS ISSUE HAS BEEN THE SUBJECT MATTER OF CONSIDERATION EVEN IN THE EARLIER YEARS. FOR THE A .Y.2005-06, THE CIT(A) IN THE OFFICE WHILE DECIDING THE ISSUE IN FAVOUR OF THE APPELLANT OBSER VED AS UNDER:- 26) I HAVE CONSIDERED THE SUBMISSION AND PERSUED T HE ASSESSMENT ORDER AS WELL AS THE TPOS ORDER. GUARANTEE FEES OR A FINANCIAL LOAN GUARANTE E IS A COMMITMENT ENTERED INTO BY A PARENT CORPORATION WITH A THIRD PARTY LENDER ON BEHALF OF THE PARENT COMPANYS SUBSIDIARY WHICH OBLIGES THE PARENT COMPANY TO COVER THE RISK OF DEFAULT FOR THE SUBSIDIARY SHOULD IT FAIL TO MEET ITS FINANCIAL OBLIGATION TO THE THIRD PARTY LENDER. 26.1 AT TIMES THIS TRANSACTION IS LABELED AS GRATUI TOUS TRANSACTION BY THE TAXPAYER AND SO NO CONSIDERATION IS CHARGED. HOWEVER, IT DOES INVOLVE PERFORMANCE OR CARRYING OUT OF SERVICE TO COVER THE RISK OF DEFAULT AND SO PRICE HAS TO BE CHARGED. 26.2 THE TPO HAS COLLECTED DATA FROM THE WEBSITE OF ALLAHABAD BANK, HSBC BANK AND ROBO INDIA FINANCE AND APPLIED THE FLAT RATE OF 3%. THA T IS TO SAY THE TPO HAS ADOPTED A NAKED QUOTE WITHOUT FACTORING IN THE QUALITATIVE FACTORS WHICH DETERMINE THE FEES. A QUOTATION GIVEN BY A THIRD PARTY E.G A BANKER DOES NOT CONSTITUTE A CUP SINCE IT IS QUOTATION AND NOT AN ACTUAL UNCONTROLLED TRANSACTIONS. THE TPO HAS ADOPTED A 3% RATE OR G UARANTEE FEES WHEN THE CITI BANK SINGAPORE (THE BANK PROVIDING THE LOAN AMOUNT) ITSELF HAS CHA RGED INTEREST AT THE RATE OF 1.625% ONLY ON THE LOAN GRANTED TO ITS AE AT SINGAPORE. THIS MAKES TH E STAND OF THE TPO UNSUSTAINABLE AS GUARANTEE FEES CAN IN NO CIRCUMSTANCES EXCEED THE RATE AT WHI CH INTEREST IS CHARGED ON LOAN. 26.3 THE TPO HAS ALSO IGNORED THE FACT THAT THE APP ELLANT HAS RECOVERED THE ENTIRE AMOUNT OF BANK GUARANTEE COMMISSION CHARGED BY HSBC BANK AS G UARANTEE AMOUNT OF SGD 30 MILLION TO ITS AE AMOUNTING TO RS.31,81,729/-. THUS IT HAS ON LY RECOVERED THE COST INCURRED BY IT I.E., ITA NO.2126/MUM/2012 & OTHER CASES ASIAN PAINTS LTD. 7 RS.15,95,849/- BUT HAS ALSO CHARGED MARK UP AT THE RATE OF 20% OR TOTAL LOAN OF SGD 30 MILLION I.E. RS.31,82,729/- WHICH WORKS OUT TO APPROX 100% MARK UP ON COST INCURRED BY ASIAN PAINTS. IT IS ALSO RELEVANT TO ADD THAT SIMILAR TRANSACTIONS W ERE THERE IN THE EARLIER YEAR WHERE THE TPO HAS ACCEPTED THE SAME TO BE AT ARMS LENGTH. TAKING AL L THE ABOVE FACTS AND CIRCUMSTANCES THE APPELLANTS TRANSACTIN IN RESPECT OF GUARANTEE FEES ID HELD TO BE A ARMS LENGTH PRICE AND THE ADJUSTMENT MADE OF RS.2,22,60,000/-. THUS, THIS GROUND OF APPEAL IS ALLOWED. SUBSEQUENTLY THIS ISSUE WAS CONTESTED BY THE DEPART MENT BEFORE THE HONBLE ITAT WHO HAVE AFTER REPRODUCING THE AFORESAID PORTION OF THE ORDER OF T HE CIT(A), HAVE OBSERVED AS UNDER:- AFTER HEARING THE LEARNED D.R. AND THE LEARNED A.R . WE ARE OF THE OPINION THAT THERE IS NO NEED TO DISTURB THE FINDING OF THE CIT(A). EVEN THOUGH THE LEARNED A.R. RELIED ON THE DECISION OF FOUR SOFT LTD. VS. CIT IN ITA NO.1495/HYD?2010 DATED 09. 09.2011 FOR THE PROPOSITION THAT IN THE ABSENCE OF CHARGING PROVISION SECTION 92B CANNOT BE MADE APPLICABLE IN RESPECT OF CORPORATE GUARANTEE, WE, HOWEVER, DO NOT INTEND TO GO INTO TH E JUDICIAL EXPEDITION ON THIS ISSUE. SUFFICE TO SAY THAT ON THE FACTS OF THE CASE ITSELF, THERE IS NO NEED FOR MAKING ANY ADJUSTMENT. IT IS ON RECORD THAT HSBC BANK ITSELF HAS CHARGED ON AMOUNT AT 0.35 % TOTALING TO RS.15,95,849/- ON COMMERCIAL CONSIDERATIONS. IT IS ALSO ON RECORD THAT THE CITY BANK HAS NOT CHARGED ANY AMOUNT DURING THE YEAR BUT CHARGED 0.25% IN THE IMMEDIATELY PRECEDING YEAR , THE YEAR IN WHICH THE TPO HAS ACCEPTED THE ARMS LENGTH PRICE. ASSESSEE NOT ONLY RECOVERE D THE ABOVE COST INCURRED BY IT FROM THE SUBSIDIARY COMPANY BUT ALSO CHARGED A MARK-UP @ 0.2 0% AND RECOVERED AN AMOUNT OF RS.31,82,729/-. THEREFORE, IN VIEW OF THE ABOVE FA CTS AVAILABLE ON RECORD THERE IS NO NEED FOR MAKING ANY ADJUSTMENT ON THE BASIS OF THE NAKED QU OTE AVAILABLE IN THE WEBSITE OF THE ALLAHABAD BANK, HSBC BANK AND ICICI BANK WHERE EVEN THE REPOR T ITSELF INDICATE THAT THE RATES VARIED FROM 0.15% TO 3%. IN VIEW OF THE FACTS OF THE CASE, WE ARE OF THE OPINION THAT THERE IS NO NEED TO MAKE ANY ADJUSTMENT IN THE TRANSFER PRICING PROVISIONS A ND THE ORDER OF THE CIT(A) REQUIRED TO BE CONFIRMED. ACCORDINGLY THE GROUND RAISED BY REVENU E IS REJECTED. THE FACTS OF THE CASE THIS YEAR ALSO REMAINED THE S AME AS IN THE ASSESSMENT YEAR 2005-06. ACCORDINGLY KEEPING IN VIEW THE PRINCIPLES OF JUDIC IAL DISCIPLINE AND JUDICIAL CONSISTENCY, THE ADJUSTMENT MADE BY THE TPO/AO TO ARRIVE AT THE ALP OF THE INTERNATIONAL TRANSACTION RELATING TO PROVIDING OF CORPORATE GUARANTEE CANNOT BE SUSTAINE D AND IS ACCORDINGLY DIRECTED TO BE DELETED. ITA NO.2126/MUM/2012 & OTHER CASES ASIAN PAINTS LTD. 8 THIS GROUND OF APPEAL IS ACCORDINGLY ALLOWED. AS T HE ISSUE PERTAINING TO ADJUSTMENT MADE BY THE TPO/AO IN RESPECT OF THE CORPORATE GUARANTEE HAS BE EN DECIDED IN FAVOUR OF THE APPELLANT, THE WITHOUT PREJUDICE SUB GROUND THAT THE ADJUSTMENT SH ALL BE MADE NET OF RECOVERY OF 0.20% AMOUNTING TO RS.14.83 LACS BECOMES INCONSEQUENTIAL AND IS ACCORDINGLY DISMISSED. 9. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS AGREED BY THE LD. REPRESENTATIVES OF BOTH THE SIDES, THIS ISSUE IS SQUARELY COVERED BY THE ORDER OF TRIBUNAL PASSED IN ASSESSEES OWN CASE FOR A.Y. 2006-07(SPURA) WHEREIN A SIMILAR ADDITION MADE TO THE TOTAL INCOME OF THE ASSESSEE WAS DELETED BY THE TRIBUNAL FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 8 OF ITS ORDER. FIRST OF ALL, IF WE ANALYZE THE EXTERNAL COMPARABLE OF HSBC BANK, IT IS NOTICED THAT THE BANK HAS GIVEN THE INFORMATION THA T IT HAS BEEN CHARGING 0.15% TO 3% OF THE GUARANTEE COMMISSION WHEREAS, IN CASE OF ALLAHABAD BANK, THE TPO HAS NOTED THE BLANKET QUOTE FROM THE WEBSITE, WHICH GIVES THE GUARANTEE COMMISSION RATE OF 3%. HOWEVER, THE T PO HAS NOT BROUGHT ANY DATA ON RECORD, FIRSTLY FOR WHICH FINANCIAL YEA R THESE DATA BELONG TO; AND SECONDLY, UNDER WHICH TERMS & CONDITIONS AND CI RCUMSTANCES, THE BANKS HAVE BEEN CHARGING GUARANTEE COMMISSION @ 3%. EVEN THE EVALUATION OF THE RISK UNDERTAKEN BY HIM BY COMPARI NG THE COMPANY F.DS AND THE BANK F.DS, IT IS NOT CLEAR AS TO HOW SUCH A RISK CAN BE EVALUATED ON THE TERMS OF CORPORATE GUARANTEE. CHARGING OF GU ARANTEE COMMISSION DEPENDS UPON THE TRANSACTION TO TRANSACTION AND MUT UAL UNDERSTANDING BETWEEN THE BANK AND THE PARTIES. THERE COULD BE IN STANCES, WHERE ON THE EVALUATION OF VARIOUS PARAMETERS, OF FINANCIAL CRED IBILITY AND STAKES OF THE CLIENT, THE BANK MAY NOT CHARGE ANY GUARANTEE COMMI SSION WHICH COMPLETELY DEPENDS UPON ITS EVALUATION, OF A PARTIC ULAR CLIENT. THIS IS ALSO EVIDENT FROM THE FACT THAT, IN SOME OF THE YEARS, I N ASSESSEE S OWN CASE, NO CHARGES HAVE BEEN PAID ON ACCOUNT OF GUARANTEE C OMMISSION AS HAS BEEN SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSES SEE. SIMPLY RELYING UPON CERTAIN DATA FROM THE MARKET WITHOUT CARRYING OUT ANY COMPARABILITY ANALYSIS OF THE ACTUAL TRANSACTIONS UNDERTAKEN, SUC H AN APPLICATION OF GUARANTEE COMMISSION RATE CANNOT BE APPLIED IN A BL ANKET MANNER IN ALL THE CASES. IN THE PRESENT CASE, WHEN THERE WAS AN I NTERNAL CUP IN THE FORM OF BANK GUARANTEE CHARGES, CHARGED BY THE BANK FROM THE ASSESSEE, THE SAME OUGHT TO HAVE BEEN FIRST ANALYSED AND EXAMINED WHEREIN THE GUARANTEE COMMISSION CHARGED RANGED BETWEEN 0.25% T O 0.35%. IT IS ALSO AN UNDISPUTED FACT, THAT IN THE EARLIER YEARS, THE TRIBUNAL HAS DELETED THE ITA NO.2126/MUM/2012 & OTHER CASES ASIAN PAINTS LTD. 9 SIMILAR ADDITION AND NO QUESTION OF LAW ON THIS SCO RE HAS BEEN RAISED BY THE DEPARTMENT. THUS, UNDER THESE FACTS AND CIRCUMS TANCES, WE HOLD THAT NO UPWARD ADJUSTMENT IN THE ALP IN RELATION TO CHAR GING OF GUARANTEE COMMISSION OVER AND ABOVE 0.20% CAN BE MADE AND, AC CORDINGLY, THE ADJUSTMENT SO MADE BY THE TPO / A.O. IS HEREBY DELE TED. 10. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDE RATION AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO A.Y. 2006-7, WE RESPECTFULLY FOLLOW THE DECISION OF THE TRIBUNAL RENDERED IN A.Y. 206-0 7 AND UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF TP ADJUSTMENT MADE IN RESPECT OF COMMISSION/FEES FOR T HE GUARANTEE GIVEN BY THE ASSESSEE-COMPANY TO ITS AES. GROUND NO. 2 OF THE R EVENUES APPEAL IS ACCORDINGLY DISMISSED. 11. NOW WE SHALL TAKE UP THE APPEAL OF THE ASSESSEE WHICH INVOLVES A SOLITARY ISSUE RELATING TO THE ADDITION OF RS.27.17 LAKHS MA DE BY THE AO AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF WEIGHTED DEDUCTION CLAIMED BY THE ASSESSEE U/S 35(2AB) ON ACCOUNT OF RESEARCH AND DEVELOPMENT EXPE NDITURE. 12. IN ITS RETURN OF INCOME FOR YEAR UNDER CONSIDER ATION, THE ASSESSEE COMPANY HAD CLAIMED WEIGHTED DEDUCTION U/S 35(2AB) OF THE ACT ON ACCOUNT OF EXPENDITURE INCURRED BY IT ON SCIENTIFIC RESEARCH A ND DEVELOPMENT DURING THE COURSE ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE AO THAT ALTHOUGH THE APPROVAL OF DEPARTMENT OF INDUSTRIAL AND SCIENTIFIC RESEARCH AND DEVELOPMENT (DSIR) WAS RECEIVED BY THE ASSESSEE FOR ITS R & D A CTIVITY, EXPENDITURE CLAIMED TO BE INCURRED AT RS.13,56,47,149/- ON R & D WAS RE DUCED TO RS.13,02,11,457/- BY THE SAID AUTHORITY IN THE CERT IFICATE ISSUED. RELYING ON THE SAID CERTIFICATE, CLAIM OF THE ASSESSEE FOR THE DEDUCTION U/S 35(2AB) WAS REDUCED BY THE AO BY RS.27,18,846/-BEING 50% OF THE R & D EXPENDITURE TREATED TO BE NOT ELIGIBLE BY DSIR IN ITS CERTIFICA TE. ON APPEAL, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE AO ON THIS I SSUE RELYING AGAIN ON THE CERTIFICATE ISSUED BY DSIR. ITA NO.2126/MUM/2012 & OTHER CASES ASIAN PAINTS LTD. 10 13. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES O N THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IN SUPPOR T OF THE ASSESSEES CASE, THE LD. COUNSEL FOR THE ASSESSEE HAS RELIED ON THE DECI SION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS CADILA HEALTH CARE LTD. 87 DTR 56. A PERUSAL OF THE JUDGMENT PASSED BY THE HONBLE GUJARAT HIGH COURT IN THIS CASE, HOWEVER, SHOWS THAT THE EXPENDITURE ON R & D WAS BI FURCATED BY THE PRESCRIBED AUTHORITY AS PER ITS CERTIFICATE IN TWO PARTS, ONE INCURRED IN-HOUSE AND THE OTHER INCURRED OUTSIDER. RELYING ON THE SA ID CERTIFICATE, THE REVENUE DISALLOWED THE EXPENDITURE INCURRED BY THE ASSESSEE OUTSIDE ITS IN-HOUSE FACILITIES WHILE THE TRIBUNAL ALLOWED THE SAME. TH E HONBLE GUJARAT HIGH COURT UPHELD THE DECISION OF THE TRIBUNAL HOLDING THAT ME RELY BECAUSE THE PRESCRIBED AUTHORITY SEGREGATED EXPENDITURE INTO TWO PARTS BY ITSELF COULD NOT BE SUFFICIENT TO DENY THE BENEFIT TO THE ASSESSEE U/S 35(2AB). T HE ISSUE INVOLVED THE IN THE CASE OF CADILA HEALTH CARE LTD.(SUPRA) THUS WAS ENT IRELY DIFFERENT AND EVEN THE FACTS INVOLVED IN THE SAID CASE WERE DIFFERENT FROM THE FACTS OF THE ASSESSEES CASE IN AS MUCH AS THE ENTIRE EXPENDITURE INCURRED BY THE ASSESSEE IN THAT CASE ON R & D WAS DULY CERTIFIED BY THE PRESCRIBED AUTHO RITY WHEREAS IN THE CASE OF THE ASSESSEE, THE SAME IS NOT CERTIFIED TO BE ELIGI BLE R & D EXPENDITURE TO THE EXTENT OF RS.54.34 LAKHS. 14. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO RELIE D ON THE DECISION OF THE AHMEDABAD BENCH OF ITAT IN THE CASE OF ACIT VS TORR ENT PHARMACEUTICALS LTD. IN ITA NO.3569/AHD/2004 DATED 13.11.2009 IN SUPPORT OF THE ASSESSEES CASE ON THE ISSUE UNDER CONSIDERATION. IN THE SAID CASE , WEIGHTED DEDUCTION CLAIMED BY THE ASSESSEE U/S 35(2AB) ON ACCOUNT OF R & D EXPENDITURE WAS PARTLY DISALLOWED BY THE AO RELYING ON THE FIGURE C ONTAINED IN THE CERTIFICATE ISSUED BY DSIR AND THE SAME WAS HELD TO BE UNSUSTAI NABLE BY THE TRIBUNAL HOLDING THAT THERE WAS NO JUSTIFICATION IN HARPING UPON THE FIGURE CONTAINED IN THE CERTIFICATE ISSUED BY DSIR AS WAS DONE BY THE A SSESSING OFFICER. IT WAS HELD BY THE TRIBUNAL THAT THE RELEVANT PROVISIONS O F THE ACT DID NOT CONTAIN ANY SPECIFIC CONDITION THAT THE DEDUCTION U/S 35(2AB) A ND ACCORDINGLY THE CLAIM OF ITA NO.2126/MUM/2012 & OTHER CASES ASIAN PAINTS LTD. 11 THE ASSESSEE FOR DEDUCTION U/S 35(2AB) WILL BE REST RICTED TO THE AMOUNT OF R & D EXPENDITURE AS CONTAINED IN THE CERTIFICATE. THE TRIBUNAL FOUND ON VERIFICATION OF THE RELEVANT DETAILS THAT EVEN THE EXPENDITURE IS NOT INCLUDED IN THE SAID CERTIFICATE WAS ELIGIBLE FOR DEDUCTION U/S 35(2AB) IN RESPECT OF THE SAID EXPENDITURE WAS ALLOWED BY THE TRIBUNAL. IN OUR OP INION, THE ISSUE INVOLVED IN THE CASE OF TORRENT PHARMACEUTICALS LTD. THUS IS SI MILAR TO THE ONE INVOLVED IN THE PRESENT CASE AND THIS POSITION IS NOT DISPUTED EVEN BY THE LD. DR AT THE TIME OF THE HEARING BEFORE US. HE, HOWEVER, HAS CO NTENDED THAT THE CLAIM OF THE ASSESSEE OF HAVING INCURRED THE EXPENDITURE IN QUES TION ON R & D WHICH IS ELIGIBLE U/S 35(2AB) HAS NOT BEEN EXAMINED EITHER B Y THE AO OR BY THE LD. CIT(A). HE HAS URGED THAT THE MATTER MAY THEREFORE BE RESTORED TO THE FILE OF AO FOR GIVING HIM AN OPPORTUNITY TO VERIFY THE SAME. WE FIND MERIT IN THIS CONTENTION OF THE LD. DR AND SINCE THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO NOT RAISED ANY OBJECTION IN THIS REGARD WE RESTORE THI S ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE SAME AFRESH AFTER VE RIFYING WHETHER THE EXPENDITURE IN QUESTION HAS BEEN INCURRED BY THE AS SESSEE ON RESEARCH AND DEVELOPMENT WHICH IS ELIGIBLE FOR DEDUCTION U/S 35( 2AB). THE APPEAL OF THE ASSESSEE IS ACCORDINGLY TREATED AS ALLOWED FOR STAT ISTICAL PURPOSE. 15. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED WHEREAS THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 20 /12/2013 SD/- SD/- AMIT SHUKLA P.M.JAGTAP (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) MUMBAI , 2 ( 2 ( 2 ( 2 ( DATED: 20.12.2013 F{X~{T? P.S. ITA NO.2126/MUM/2012 & OTHER CASES ASIAN PAINTS LTD. 12 $ - + 431 / COPY OF THE ORDER FORWARDED TO : (1) &( 56 / THE ASSESSEE; (2) !' / THE REVENUE; (3) 7() / THE CIT(A); (4) 7 / THE CIT, MUMBAI CITY CONCERNED; (5) 3': +&&( , , / THE DR, ITAT, MUMBAI; (6) ;5 < / GUARD FILE. ,3 +& / TRUE COPY $( / BY ORDER = / > / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI