DCIT, CIR-10(1), KOLKATA, Kolkata V. M/s Akzo Nobel India Ltd., Kolkata

ITA 560/KOL/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 3664 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Kolkata
• Assessment Year: 2011-2012
• Appeal Filed On: 30-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Assessee Lawyers: MANONEET DALAL
• Keywords: Depreciation; Transfer pricing; International transaction; Additional depreciation; Earning of tax free income; Initiation of penalty proceedings; Set aside
• Section: 271(1)(c); 143(3); 92B; 14A; 115JB; 37(1); 144C; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA C BENCH, KOLKATA (BEFORE SRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER & SRI S.S. VISWANETHRA, JUDICIAL MEMBER) I.T.A. NO. 560/KOL/2016 ASSESSMENT YEAR: 2011-12 DEPUTY COMMISSIONER OF INCOME TAX, CIRLE-10(1), KOLKATA................................APPELLANT VS. M/S. AKZO NOBEL INDIA LTD..........................................................RESPONDENT GEETANJALI APARTMENT 1 ST FLOOR 8B, MIDDLETON STREET KOLKATA 700 071 [PAN : AAACI 6297 A] I.T.A. NO. 315/KOL/2016 ASSESSMENT YEAR: 2011-12 M/S. AKZO NOBEL INDIA LTD..................................................................APPELLANT GEETANJALI APARTMENT 1 ST FLOOR 8B, MIDDLETON STREET KOLKATA 700 071 [PAN : AAACI 6297 A] VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRLE-10(1), KOLKATA............................RESPONDENT APPEARANCES BY: SHRI MANONEET DALAL, ADVOCATE, APPEARED ON BEHALF OF THE ASSESSEE. DR. P.K. SRIHARI, CIT D/R , APPEARING ON BEHALF OF THE REVENUE. DATE OF CONCLUDING THE HEARING : JULY 30 TH , , 2019 DATE OF PRONOUNCING THE ORDER : AUGUST 28 TH , 2019 ORDER PER J. SUDHAKAR REDDY, AM :- THESE ARE CROSS-APPEALS DIRECTED AGAINST THE ORDER PASSED BY THE ASSESSING OFFICER U/S 144C R.W.S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) IN PURSUANCE TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL 2, NEW DELHI, ISSUED U/S 144(5) OF THE ACT, VIDE ORDER DT. 26/11/2015. 2. AKZO NOBEL INDIA LIMITED (HEREINAFTER REFERRED TO AS ASSESSEE), IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND MARKETING OF PAINTS, SPECIALITY CHEMICALS AND STARCH. IT HAS FOLLOWING TWO BUSINESS DIVISIONS: PAINTS BUSINESS DIVISION (PBD) - PBD IS ENGAGED IN MANUFACTURING AND SUPPLY OF DECORATIVE PAINTS. PBD HAS THREE MANUFACTURING PLANTS SITUATED AT HYDERABAD, THANE AND MOHALI. 2 I.T.A. NO. 560/KOL/2016 ASSESSMENT YEAR: 2011-12 I.T.A. NO. 315/KOL/2016 ASSESSMENT YEAR: 2011-12 M/S. AKZO NOBEL INDIA LTD NATIONAL STARCH AND CHEMICALS DIVISION (NSC) - NSC DIVISION IS INTO NATURAL POLYMERS GROUP ('NPG') AND SPECIALTY POLYMER GROUP ('SPG'). IT IS ENGAGED IN THE BUSINESS OF SURFACTANTS, SYNTHETIC SPECIALTY POLYMERS AND NATURAL POLYMERS, AGRO CHEMICALS, CHEMICALS USED IN CUSTOMER CARE PRODUCTS, FABRIC AND CLEANING. 2.1. WITH RESPECT TO ITS MANUFACTURING OPERATIONS IN BOTH PBD AND NPG & SPG DIVISION, ASSESSEE BEARS ALL ASSOCIATED RISKS SUCH AS MARKET RISK, PRODUCT LIABILITY RISK, CREDIT RISK, CONTRACT RISK ETC. ON ITS OWN ACCOUNT. THEREFORE, THE ASSESSEE OPERATES AS A NORMAL MANUFACTURER WITH ALL NORMAL RISKS ASSOCIATED WITH CARRYING OUT SUCH BUSINESS. 3. WE HAVE HEARD RIVAL CONTENTIONS. ON CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, PERUSAL OF THE PAPERS ON RECORD, ORDERS OF THE AUTHORITIES BELOW AS WELL AS CASE LAW CITED, WE HOLD AS FOLLOWS:- 4. WE FIRST TAKE UP THE ASSESSEES APPEAL IN I.T.A. NO. 315/KOL/2016. 5. GROUND NO. 1, IS GENERAL IN NATURE. 6. GROUND NO. 2 & 3, ARE ON THE ISSUE OF TRANSFER PRICING (TP) ADJUSTMENTS, MADE TOWARDS ADVERTISING, MARKETING AND PROMOTION EXPENSES (AMP EXPENSES). THE TRANSFER PRICING OFFICER (TPO) HELD THAT BY INCURRING SUCH EXPENSES, THE ASSESSEE HAS PROVIDED SERVICES TO ITS ASSOCIATE ENTERPRISES (AE). THOUGH A NUMBER OF ARGUMENTS WERE ADVANCED BY BOTH THE PARTIES ON THIS ISSUE, THE PRIMARY ARGUMENT OF THE ASSESSEE IS THAT, THE TRANSACTION IN QUESTION IS NOT AN INTERNATIONAL TRANSACTION. IN OTHER WORDS, THE SUBMISSIONS OF THE ASSESSEE IS THAT, THE AMP EXPENSES DO NOT CONSTITUTE INTERNATIONAL TRANSACTIONS. 6.1. WE FIND THAT THE ITAT KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. M/S PHILIPS INDIA LTD. IN ITA NOS. 863 & 539/KOL/2016, ORDER DT. 15/12/2017 , HELD AS FOLLOWS:- 43. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE PRIMARY ISSUE HERE ARISES WHETHER THE AMP EXPENSES CONSTITUTE THE INTERNATIONAL TRANSACTIONS SO AS TO ATTRACT THE PROVISIONS OF TRANSFER PRICING OF THE INCOME TAX ACT . THE CLAIM OF THE LD. AR IS THAT THE AMP TRANSACTION DOES NOT REPRESENT THE INTERNATIONAL TRANSACTION BETWEEN THE AE'S THEREFORE NO QUESTION OF DETERMINING THE ALP OF AMP TRANSACTIONS. WE FIND FORCE IN THE ARGUMENT OF THE LD. AR IN THE GIVEN FACTS & CIRCUMSTANCES. THEREFORE, IN OUR CONSIDERED VIEW THE AMP CANNOT BE REGARDED AS INTERNATIONAL TRANSACTION. IN HOLDING SO WE FIND THE SUPPORT & 3 I.T.A. NO. 560/KOL/2016 ASSESSMENT YEAR: 2011-12 I.T.A. NO. 315/KOL/2016 ASSESSMENT YEAR: 2011-12 M/S. AKZO NOBEL INDIA LTD GUIDANCE FROM THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF MARUTI SUZUKI INDIA LIMITED VS. CIT REPORTED IN 381 ITR 117 WHEREIN IT WAS HELD AS UNDER : '51. THE RESULT OF THE ABOVE DISCUSSION IS THAT IN THE CONSIDERED VIEW OF THE COURT THE REVENUE HAS FAILED TO DEMONSTRATE THE EXISTENCE OF AN INTERNATIONAL TRANSACTION ONLY ON ACCOUNT OF THE QUANTUM OF AMP EXPENDITURE BY MSIL. SECONDLY, THE COURT IS OF THE VIEW THAT THE DECISION IN SONY ERICSSON MOBILE COMMUNICATIONS INDIA (P.) LTD. CASE (SUPRA) HOLDING THAT THERE IS AN INTERNATIONAL TRANSACTION AS A RESULT OF THE AMP EXPENSES CANNOT BE HELD TO HAVE ANSWERED THE ISSUE AS FAR AS THE PRESENT ASSESSEE MSIL IS CONCERNED SINCE FINDING IN SONY ERICSSON TO THE ABOVE EFFECT IS IN THE CONTEXT OF THOSE ASSESSEES WHOSE CASES HAVE BEEN DISPOSED OF BY THAT JUDGMENT AND WHO DID NOT DISPUTE THE EXISTENCE OF AN INTERNATIONAL TRANSACTION REGARDING AMP EXPENSES.' IN VIEW OF WE NOTE THAT THE FACTS OF THE ABOVE CASE ARE IDENTICAL TO THE PRESENT ISSUE, THUS THE PRINCIPLE LAID DOWN BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF MARUTI SUZUKI INDIA LIMITED (SUPRA) ARE APPLICABLE TO THE INSTANT CASE. RESPECTFULLY FOLLOWING THE SAME WE DISMISS THE GROUND OF APPEAL FILED BY THE REVENUE. 6.2. THE KOLKATA C BENCH OF THE TRIBUNAL IN THE CASE OF ORGANON INDIA PVT. LTD. VS. DCIT IN ITA NOS. 633 & 2459/KOL/2017 , ORDER DT. 24/10/2018 , APPLIED THE RATIO OF DECISION IN THE CASE OF PHILIPS INDIA LTD VS ACIT IN ITA NO. 2489/KOL/2017 DATED 4.4.2018 FOR ASST YEAR 2013-14, AND CAME TO A CONCLUSION THAT THE AMP EXPENDITURE IS NOT AN INTERNATIONAL TRANSACTION. 6.3. THE ARGUMENT OF THE LD. D/R THAT ON FACTS THE ASSESSEE IS A DISTRIBUTOR, IS NOT EMANATING FROM THE RECORDS. THE ASSESSEE IS ENGAGED IN MANUFACTURING AND SUPPLY ACTIVITIES. THUS, THE ARGUMENT OF THE LD. D/R IS REJECTED ON FACTS. THE FACTS OF THE ASSESSEES CASE AND THE FACTS IN THE CASE OF PHILIPS INDIA LTD. (SUPRA) AND ORGANON INDIA PVT. LTD. (SUPRA) ARE SAME AS ALL THESE COMPANIES ARE ENGAGED IN MANUFACTURING AND SALE. 7. IN VIEW OF THE ABOVE DISCUSSION, AMP EXPENSES CANNOT BE REGARDED AS AN INTERNATIONAL TRANSACTION AS PER SECTION 92B OF THE ACT, IN THE CASE OF THE ASSESSEE SO AS TO INVOKE PROVISIONS OF SECTION 92 OF THE ACT. AS WE HAVE HELD THAT THE THAT THE AMP EXPENDITURE IN QUESTION IS NOT AN INTERNATIONAL TRANSACTION, THE TP ADJUSTMENT MADE IN THIS REGARD IS HEREBY DELETED AND THESE GROUNDS OF THE ASSESSEE ARE ALLOWED. 8. GROUND NO. 4, IS ON THE ISSUE OF TP ADJUSTMENT WITH RESPECT TO RESEARCH AND TRAINING EXPENDITURE (R & T EXPENDITURE). 4 I.T.A. NO. 560/KOL/2016 ASSESSMENT YEAR: 2011-12 I.T.A. NO. 315/KOL/2016 ASSESSMENT YEAR: 2011-12 M/S. AKZO NOBEL INDIA LTD 8.1. HERE ALSO, THOUGH A NUMBER OF ARGUMENTS WERE RAISED, THE JURISDICTIONAL ISSUE IS WHETHER R&T EXPENSES CAN BE CONSIDERED AS AN INTERNATIONAL TRANSACTION. THE EXPENSES IN QUESTION COVERED UNDER R&T EXPENSES RELATE TO, SERVICE FEE PAID BY THE COMPANY FOR R&T SERVICES, OBTAINED BY THE COMPANY, FROM ANOTHER GROUP COMPANY OF THE ASSESSEE I.E., ICT INDIA RESEARCH & TECHNOLOGY CENTRE (ICI). ICT IS A COMPANY REGISTERED U/S 25 OF THE ACT AS A NOT FOR PROFIT ORGANIZATION. ICT PROVIDES MANUFACTURING AND TRAINING SUPPORT SERVICES TO THE ASSESSEE ON COST TO COST BASIS. ACCORDINGLY, THE EXPENSES COVERED UNDER THE HEAD R&T EXPENSES PERTAIN TO THE FEE PAID TO ICT. ICT PROVIDES TECHNICAL SUPPORT AND TRAINING TO THE MANUFACTURING AND MARKETING OPERATIONS OF PAINTS BUSINESS DIVISION. THE SERVICES PROVIDED BY ICT DURING THE RELEVANT FINANCIAL YEAR CAN BE SUMMARIZED AS FOLLOWS: ASSISTED THE APPELLANT IN COMPLYING WITH VARIOUS HEALTH SAFETY AND ENVIRONMENT (HSE) PROCEDURES MANDATED FOR THE CHEMICAL INDUSTRY IN INDIA. PROVIDED SOLUTIONS FOR COMPLIANCE OF ENVIRONMENTAL REGULATIONS GOVERNED BY VARIOUS LOCAL AUTHORITIES IN INDIA. PROVIDED ASSISTANCE TO THE PRODUCTION DEPARTMENT AND THE COMPANY'S FACTORIES IN DETERMINING THE APPROPRIATE MIXTURE OF VARIOUS RAW MATERIAL COMPONENTS FOR ACHIEVING THE DESIRED COLOUR AND TEXTURE OF THE PAINT TO BE MANUFACTURED. PROVIDED TECHNICAL TRAINING ON THE MANUFACTURING PROCESSES TO THE PRODUCTION TEAM FROM TIME TO TIME TO ENSURE TECHNICAL UPDATION, IMPROVEMENT AND REFINEMENT OF THE PRODUCTION TEAM FOR THE OVERALL EFFICIENT EXECUTION OF MANUFACTURING OPERATIONS OF THE APPELLANT. PROVIDED OTHER TECHNICAL SUPPORT ON DAY TO DAY BASIS TO THE MANUFACTURING OPERATIONS AND ADDRESSED THE MANUFACTURING PROCESS GAPS. PROVIDED TRAINING TO THE MARKETING TEAM ON THE PRODUCT, THE NATURE AND FEATURE OF THE PRODUCTS ETC. NECESSARY FOR SALES AND MARKETING OF THE APPELLANT'S PRODUCTS IN THE DESIGNATED MARKET I.E. INDIA. ASSISTED THE QUALITY DEPARTMENT IN HANDLING PRODUCT DEFECT/ QUALITY ISSUE OR REDRESSING ANY PRODUCT COMPLAINTS FROM THE CUSTOMERS. 5 I.T.A. NO. 560/KOL/2016 ASSESSMENT YEAR: 2011-12 I.T.A. NO. 315/KOL/2016 ASSESSMENT YEAR: 2011-12 M/S. AKZO NOBEL INDIA LTD 8.2. A PERUSAL OF THE ABOVE DEMONSTRATES THAT, ON FACTS THE ASSESSEE HAS NOT CARRIED OUT ANY R&T ACTIVITIES. THE EXPENDITURE IN QUESTION IS INCURRED ONLY FOR ITS MANUFACTURING OPERATIONS AND LOCAL ENVIRONMENTAL COMPLIANCE FROM HSE PERSPECTIVE. THE ASSESSEE SUBMITTED THAT ICT ALSO DOES NOT CARRY OUT ANY RESEARCH AND DEVELOPMENT ACTIVITIES FOR DEVELOPMENT OF ANY NEW PROJECT/TECHNOLOGY. IT IS PRIMARILY A CAPTIVE SUPPORT CENTRE FOR THE LOCAL INDIA OPERATION OF THE ASSESSEE. THUS, WE ARE OF THE CONSIDERED OPINION THAT THE EXPENDITURE ON RESEARCH AND TRAINING DOES NOT CONSTITUTE ANY INTERNATIONAL TRANSACTIONS ON FACTS. WE ALSO FIND THAT THE TPO/AO HAS NOT CONSIDERED THIS EXPENDITURE INCURRED IN THE EARLIER YEARS TOWARDS R&T EXPENSES, AS INTERNATIONAL TRANSACTIONS. THUS, IN VIEW OF THE ABOVE DISCUSSION, WE HOLD THAT THE EXPENDITURE INCURRED ON R&T IS NOT AN INTERNATIONAL TRANSACTION AS PER SECTION 92B OF THE ACT, SO AS TO ENABLE INVOCATION OF PROVISION OF SECTION 92 OF THE ACT. THUS, WE DELETE THE TP ADJUSTMENT MADE IN THIS REGARD AND ALLOW THIS GROUND OF THE ASSESSEE. 9. GROUND NO. 5, IS AGAINST THE TP ADJUSTMENT MADE WITH REGARD TO THE INTERNATIONAL TRANSACTION PERTAINING TO INTRA GROUP SERVICES. THIS ISSUE HAS BEEN CONSIDERED BY THIS BENCH OF THE TRIBUNAL IN THE EARLIER ASSESSMENT YEARS, IN THE ASSESSEES OWN CASE IN ITA NO. 229 & 346/KOL/2015, ASSESSMENT YEAR 2010-11, ORDER DT. 14/02/2018 , WHEREIN IT HAS BEEN HELD AS FOLLOWS:- 7. WE HAVE HEARD BOTH THE PARTIES. WE NOTE THAT THE TPO HAS NOT CARRIED OUT THE EXERCISE FOR COMPUTING THE ARM'S LENGTH PRICE ON THE PLEA THAT ASSESSEE DID NOT PROVIDE THE AGREEMENT WITH ANCR, WHEREAS THE ASSESSEE CLAIMS TO HAVE PROVIDED A COPY ON 21.01.2014. THOUGH THE DRP OBSERVES THAT NATURE OF SERVICE PROVIDED BY ANCR ARE IN THE NATURE OF SERVICE FOR STRATEGIC AND OPERATIONS AND HELPS IN ACHIEVING CORPORATE OBJECTIVES BY ALIGNING WORKFORCE AND ORGANIZATIONAL OBJECTIVES IN THE FIELD OF MARKETING HR, FINANCE, MANAGEMENT SERVICES, PURCHASES ETC., HELD IT AS STEWARDSHIP SERVICES. WE NOTE THAT TPO HAS NOT CARRIED OUT ANY EXERCISE TO DETERMINED THE ARMS LENGTH PRICE OF BENEFIT, SERVICE ETC. AS PER THE MOST APPROPRIATE METHOD AS ENVISAGED IN SEC. 92C(1) OF THE ACT. SINCE THE TPO HAS NOT CARRIED OUT THE EXERCISE WHICH HE OUGHT TO HAVE CARRIED OUT AS ENVISAGED BY THE ACT ON THE ERRONEOUS PLEA THAT AGREEMENT BETWEEN ASSESSEE AND ANCR WAS NOT PLACED BEFORE HIM, WE SET ASIDE THE ORDER OF LD. DRP/AO & TPO AND REMAND THE MATTER BACK TO TPO FOR FRESH CONSIDERATION AND PASS ORDER IN THE LIGHT OF THE TRIBUNAL'S DETAILED ANALYSIS OF THE AGREEMENT BETWEEN ASSESSEE AND ANPAP WHICH WE DECIDED SUPRA. THE TPO IS DIRECTED TO PASS SPEAKING ORDER AFTER GIVING PROPER OPPORTUNITY TO ASSESSEE ON THIS ISSUE. 10. CONSISTENT WITH THE VIEW TAKEN THEREIN, AS AGREED BY BOTH THE PARTIES, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER, FOR FRESH ADJUDICATION, IN 6 I.T.A. NO. 560/KOL/2016 ASSESSMENT YEAR: 2011-12 I.T.A. NO. 315/KOL/2016 ASSESSMENT YEAR: 2011-12 M/S. AKZO NOBEL INDIA LTD ACCORDANCE WITH LAW. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 11. GROUND NO. 6 IS GENERAL IN NATURE. 12. GROUND NO. 7, IS AGAINST THE INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. THIS GROUND IS DISMISSED AS PREMATURE. 13. GROUND NO. 8, IS AGAINST THE LEVY OF INTEREST U/S 234A, 234B, 234C & 234D OF THE ACT. THIS GROUND IS DISMISSED AS CONSEQUENTIAL IN NATURE. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART. 15. WE NOW TAKE UP THE REVENUES APPEAL IN I.T.A. NO. 560/KOL/2016. 16. GROUND NOS. 1 & 2 ARE ON THE ISSUE AS TO WHETHER THE PROVISIONS MADE FOR MEETING LIABILITIES IS AN ASCERTAINED LIABILITY. THE ASSESSING OFFICER DISPUTES THE DIRECTIONS OF THE DRP TO ALLOW THIS PROVISION AS AN ASCERTAINED LIABILITY. THE LD. DRP ON THE GROUND THAT THE PROVISION WAS MADE BASED ON DATA OF PAST ACTIVITIES AND ON THE GROUND THAT THE PROVISION WAS MADE IN A SYSTEMATIC AND SCIENTIFIC MANNER DIRECTED THE ASSESSING OFFICER TO ALLOW THE SAME BY APPLYING THE PROPOSITIONS OF LAW LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF ROTORK CONTROLS INDIA (P.) LTD. V. COMMISSIONER OF INCOME-TAX, CHENNAI [2009] 314 ITR 62 (SC). 16.1. AFTER HEARING RIVAL CONTENTIONS, WE FIND THAT THE DRP HAS SET ASIDE THE ISSUE TO THE ASSESSING OFFICER WITH A DIRECTION TO DELETE THE ADDITIONS AFTER VERIFYING THE FACTS SUBMITTED BY THE ASSESSEE. THE ASSESSEE HAD SUBMITTED THAT IT HAD SUO MOTO DISALLOWED PROVISIONS FOR UP SALES TAX AND PROVISION FOR NATIONAL STARCH AND THAT ALL THE REMAINING ITEMS ARE PRIOR PERIOD ITEMS. WE DO NOT FIND ANY REASON FOR THE ASSESSING OFFICER TO HAVE A GRIEVANCE AGAINST SUCH DIRECTIONS OF THE DRP, WHICH ARE IN ACCORDANCE WITH LAW. THUS, GROUND NOS. 1 & 2 OF THE REVENUE ARE DISMISSED. 16.1.1. THE LD. D/R SUBMITTED THAT THE ISSUE THAT IS IN DISPUTE IS REGARDING THE COMPUTATION OF BOOK PROFITS U/S 115JB OF THE ACT. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE AS FOLLOWS:- 7 I.T.A. NO. 560/KOL/2016 ASSESSMENT YEAR: 2011-12 I.T.A. NO. 315/KOL/2016 ASSESSMENT YEAR: 2011-12 M/S. AKZO NOBEL INDIA LTD I) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HONBLE DRP HAS ERRED BY IGNORING THE FINDINGS OF THE AO THAT THE ASSESSEE HAD MADE THE PROVISIONS ON ESTIMATE BASIS AND NOT BASED ON THE METHOD APPLIED SCIENTIFICALLY BECAUSE NONE OF THE LIABILITIES TO BE MET AND FOR WHICH THE AMOUNT HAS BEEN SET ASIDE TO PROVISIONS MADE WERE/ARE ASCERTAINED LIABILITIES. II) THAT ON THE FACTS AND CIRCUMSTANCE OF THE CASE, THE HONBLE DRP HAS ERRED BY IGNORING THE FINDINGS OF THE AO WHICH WAS BASED IN THE LIGHT OF THE RATIO OF JUDGEMENT OF HONBLE APEX COURT IN THE CASE OF ROTORK CONTROLS INDIA (PVT.) LTD. VS. CIT CHENNAI [2009] 314 ITR 62 (SC) WHEREIN IT WAS EMPHASIZED THAT ANY PROVISIONS MADE OUT OF PAST ACTIVITIES ON RELIABLE, SYSTEMATIC AND AUTHENTIC ESTIMATE INTER ALIA OTHER CONDITIONS MAY ONLY BE TREATED AS ASCERTAINED LIABILITY TO ALLOW THE DEDUCTION U/S. 37(1) OF THE I.T. ACT, 1961. 16.2. THUS, THIS ISSUE OF COMPUTATION OF BOOK PROFITS U/S 115JB OF THE ACT, IS NOT DISPUTED BY THE REVENUE IN ITS GROUNDS OF APPEAL. EVEN OTHERWISE, ANY ASCERTAINED LIABILITY HAS TO BE ADJUSTED WHILE COMPUTING BOOK PROFITS U/S 115JB OF THE ACT. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF DEPUTY COMMISSIONER OF INCOME- TAX, CIRCLE 1(2), BARODA V. INOX LEISURE LTD. [2013] 351 ITR 314 (GUJARAT) HAS IN THE LAST PARA HELD AS FOLLOWS:- 20. IN CASE OF ROTORK CONTROLS INDIA (P.) LTD. V. CIT [20P09] 314 ITR 62/180 TAXMAN 422 (SC), THE SUPREME COURT IN THE CONTEXT OF AN ASSESSEE MAKING PROVISION FOR ESTIMATED EXPENDITURE TOWARDS WARRANTY OBSERVED THAT PROVISION IS A LIABILITY WHICH CAN BE MEASURED ONLY BY USING SUBSTANTIAL DEGREE OF ESTIMATION. SUCH PROVISION IS RECOGNIZED WHEN AN ASSESSEE HAD A PRESENT OBLIGATION AS A RESULT OF PAST EVENTS, AND IT IS POSSIBLE THAT ANY OUTFLOW OF RESOURCES WILL BE REQUIRED TO SETTLE THE OBLIGATION AND FURTHER A RELIABLE ESTIMATE CAN BE MADE OF THE AMOUNT OF OBLIGATION. 21. CONSIDERING THE ABOVE JUDICIAL PRONOUNCEMENTS AND THE FACTS ON HAND, WE HAVE NO HESITATION IN UPHOLDING THE TRIBUNAL'S VIEW THAT THOUGH ACTUAL PAYMENT OF GRATUITY MAY BE MADE AT A LATER POINT OF TIME UPON PERIODICAL RELEASE OF THE EMPLOYEES FROM SERVICE, IT IS PROVISION HAVING BEEN MADE ON ACTUARIAL BASIS IT CANNOT BE STATED TO BE AN UNCERTAINED LIABILITY SO AS TO ADD IT BACK IN TERMS OF CLAUSE (C) TO EXPLANATION 1 TO SECTION 115JB. IN THE RESULT, ALL THE TAX APPEALS ARE DISMISSED. 16.3. IN ANY EVENT, WE ARE DEALING ON FACTS WITH PRIOR PERIOD ITEMS. HENCE THIS ARGUMENT OF THE LD. D/R IS DISMISSED AS DEVOID OF MERIT. 8 I.T.A. NO. 560/KOL/2016 ASSESSMENT YEAR: 2011-12 I.T.A. NO. 315/KOL/2016 ASSESSMENT YEAR: 2011-12 M/S. AKZO NOBEL INDIA LTD 17. GROUND NO. 3, RAISED BY THE REVENUE DISPUTES THE DELETION OF DISALLOWANCE BY THE DRP, OF NORMAL DEPRECIATION OF RS.1,52,84,916/- AND ADDITIONAL DEPRECIATION OF RS.38,21,229/- PERTAINING TO COLOUR SOLUBLE MACHINE. 17.1. THE COMPANY HAD CLAIMED NORMAL AND ADDITIONAL DEPRECIATION ON COLOUR SOLUBLE MACHINES, WHICH WERE INSTALLED AT THEIR RESPECTIVE DEALERS PREMISES UNDER THE CATEGORY PLANT AND MACHINERY. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE COLOUR SOLUBLE MACHINES, DO NOT AID IN THE PROCESS OF MANUFACTURING AND DOES NOT PRODUCE ANY ITEM FALLING WITHIN THE DEFINITION OF THE TERM MANUFACTURE AS DEFINED IN SECTION 2(29BA) OF THE ACT. HE WAS OF THE OPINION THAT THESE MACHINES ONLY WORK LIKE A MIXTURE MACHINE TO CHANGE THE SHADE, BY WAY OF MIXING TWO FINISHED PRODUCTS I.E., COLOUR AND PAINTS. HE HELD THAT THIS WOULD NOT RESULT IN CHANGE IN CHEMICALS AND IN CREATING ANY NEW ITEM. THE ASSESSING OFFICER NOTED THAT, THE COLOUR SOLUTION MACHINES ARE NOT FIXED ANYWHERE WITHIN THE PREMISES OWNED BY THE ASSESSEE COMPANY, AS THEY WERE FIXED AT THE DEALERS PREMISES. HE RE-CLASSIFIED THESE MACHINES UNDER THE HEAD FURNITURE AND FIXTURES. THE LD. DRP CONSIDERED THE FACTS AND TREATED THESE COLOUR SOLUTIONS MACHINES AS PLANT AND MACHINERY. THE ASSESSING OFFICER DISPUTES THESE FINDINGS OF THE DRP. IN OUR VIEW THE COLOUR SOLUTION MACHINES, HAVE RIGHTLY BEEN CLASSIFIED AS PLANT AND MACHINERY BY THE DRP. IT CORRECTLY HELD THAT THESE ARE OPERATIONAL TOOLS AND CANNOT BE CALLED FURNITURE AND THAT THE TEST MUST BE AS TO WHETHER THESE MACHINES ARE OWNED BY THE ASSESSEE AND HAVE BEEN USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THESE TESTS WERE SATISFIED FOR CLAIM OF DEPRECIATION AS PLANT AND MACHINERY WE FIND NOT INFIRMITY IN THIS ORDER OF THE LD. DRP. THUS, WE UPHOLD THE SAME AND DISMISS THIS GROUND OF THE REVENUE. 18. GROUND NOS. 4 & 5, ARE ON THE ISSUE OF DISALLOWANCE U/S 14A R.W.R. 8D OF THE INCOME TAX RULES, 1962 (RULES). 18.1. DURING THE YEAR, THE ASSESSEE COMPANY EARNED DIVIDEND INCOME FROM MUTUAL FUNDS OF RS.2,24,20,341/- AND LONG TERM CAPITAL GAIN ON SALE OF SHARES OF RS.5,63,27,717/-. BOTH PUT TOGETHER, RESULTED IN THE ASSESSEE COMPANY EARNING EXEMPT INCOME OF RS. 7,87,48,058/-. THE ASSESSEE SUO MOTO DISALLOWED RS.7,61,500/- 9 I.T.A. NO. 560/KOL/2016 ASSESSMENT YEAR: 2011-12 I.T.A. NO. 315/KOL/2016 ASSESSMENT YEAR: 2011-12 M/S. AKZO NOBEL INDIA LTD U/S 14A R.W.R. 8D, IN ITS COMPUTATION OF INCOME UNDER THE NORMAL PROVISION OF THE ACT. THE ASSESSING OFFICER ENHANCED THE DISALLOWANCE BY RS.5,34,41,354/-. THE DRP DIRECTED THE ASSESSING OFFICER TO FOLLOW THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. VS. CIT [2015] 61 TAXMANN.COM 118 (DELHI) AND RECOMPUTE THE DISALLOWANCE. THE LD. DRP FOLLOWED ITS ORDER PASSED IN THE PREVIOUS YEAR ON THE SAME ISSUE. WE FIND NO INFIRMITY IN THIS DIRECTION OF THE LD. DRP. THUS, THIS GROUND OF THE REVENUE IS DISMISSED. 19. THE NEXT ISSUE IS AGAINST ADJUSTMENT TO BE MADE OF DISALLOWANCE U/S 14A R.W.R. 8D WHILE COMPUTING THE BOOK PROFITS U/S 115JB OF THE ACT. 19.1. THE DIRECTIONS OF THE DRP ARE THAT THE ASSESSING OFFICER HAS TO STRICTLY CONSTRUE SECTION 115JB OF THE ACT AND NOT TO MAKE A SIMILAR DISALLOWANCE THEREIN. 19.2. THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. VIREET INVESTMENT (P.) LTD. (2017) 82 TAXMANN.COM 415 (DL-TRIB.)(SB), CONSIDERED THIS ISSUE AND CAME TO A CONCLUSION THAT THE LATER JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF PR. CIT V. BHUSHAN STEEL LTD. IN ITA NO.593/2015, HAS TO BE FOLLOWED. AS THE DECISION OF THE HONBLE DRP IS IN LINE WITH THE ORDER OF THE SPECIAL BENCH, WE FIND NO REASON TO INTERFERE IN THE SAME AND DISMISS THIS GROUND OF THE REVENUE. 19.3. IN VIEW OF THE ABOVE DISCUSSION, WE UPHOLD THE ORDER OF THE DRP ON THESE ISSUES AND DISMISS THIS GROUND OF THE REVENUE. 20. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART AND APPEAL OF THE REVENUE IS DISMISSED. KOLKATA, THE 28 TH DAY OF AUGUST, 2019. SD/- SD/- [S.S. VISWANETHRA RAVI] [J. SUDHAKAR REDDY] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 28.08.2019 {SC SPS} 10 I.T.A. NO. 560/KOL/2016 ASSESSMENT YEAR: 2011-12 I.T.A. NO. 315/KOL/2016 ASSESSMENT YEAR: 2011-12 M/S. AKZO NOBEL INDIA LTD COPY OF THE ORDER FORWARDED TO: 1. M/S. AKZO NOBEL INDIA LTD GEETANJALI APARTMENT 1 ST FLOOR 8B, MIDDLETON STREET KOLKATA 700 071 2 . DEPUTY COMMISSIONER OF INCOME TAX, CIRLE-10(1), KOLKATA 3. CIT(A)- 4. CIT- , 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT, KOLKATA BENCHES