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

ITA 655/MUM/2017

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 2142 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 29-01-2017
• Result in Favour of: Matter Remanded
• Court: TRIBUNAL
• Keywords: Gift; Depreciation; Transfer pricing; Double taxation relief; International transaction; Rule of consistency; Additional depreciation; Earning of tax free income; Question of law; Corroborative evidences; Capital expenditure; TDS; Rule 8D
• Section: 32; 143(3); 92B; 14A; 40(a)(ia); 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA NO. 655/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., 6A, Shantinagar Santacruz (East) Mumbai – 400055 PAN: AAACA3622K v. Addl. CIT – LTU – 2 29 th Floor, World Trade Centre Cuffe Parade, Mumbai - 400005 (Appellant) (Respondent) ITA NO. 749/MUM/2017 (A.Y: 2011-12) Addl. CIT – LTU – 2 Centre-1, 29 th Floor World Trade Centre Cuffe Parade, Mumbai - 400005 v. M/s. Asian Paints Ltd., 6A, Shantinagar Santacruz (East) Mumbai – 400055 PAN: AAACA3622K (Appellant) (Respondent) Assessee by : Shri Madhur Agarwal Department by : Shri S.K. Das Date of Hearing : 22.06.2022 Date of Pronouncement : 28.07.2022 2 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., O R D E R PER S. RIFAUR RAHMAN (AM) 1. These cross appeals are filed by assessee and Revenue against order of the Learned Commissioner of Income Tax (Appeals)-55, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 27.10.2016 for the A.Y.2011-12. 2. First we take up the appeal of the assessee in ITA.No. 655/Mum/2017 for the A.Y. 2011-12 and we will deal with the issues ground wise. 3. Assessee has raised following grounds in its appeal: - “1. The learned Commissioner of Income Tax (Appeals)-55, Mumbai erred in disallowing Rs.0.33 lacs on account of Transfer Pricing adjustments for non-recovery of charges for providing letter of support/comfort. 2. The learned Commissioner of Income Tax (Appeals)-55, Mumbai erred in confirming an ad hoc addition of Rs.69.40 lacs (net) on account of non-inclusion of damaged stock in valuation of closing stock. 3. The learned Commissioner of Income Tax (Appeals)-55, Mumbai erred in applying Rule 8D & confirming the disallowance to the tune of Rs. 45.12 lacs u/s. 14A of the Income Tax act, 1961.” 4. Ld. Counsel for the assessee, vide letter dated 05.02.2021 raised additional grounds of appeal which are reproduced below: - “Ground No 4: Refund for excess Dividend Distribution Tax ("DDT") Paid 3 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., On the facts and in the circumstances of the case and in law, the appellant submits that the excess DDT paid by the Appellant u/s 115O of the Income-tax Act, 1961 having regards to the beneficial rate as per the applicable Double Taxation Avoidance Agreement (DTAA) for dividends paid to non-resident shareholders, should be directed to be refund to the Appellant.” Ground No 5: Deduction in respect of education cess On the facts and in the circumstances of the case, the Education Cess on Income-tax paid by the Appellant for the captioned year is an allowed expenditure and the Assessing officer be directed to allow the same while computing the income of the Appellant. The Appellant craves leave to add, amend, delete, rectify, substitute, and modify the aforesaid ground of appeal or add new grounds of appeal at any time before or at the time of hearing of the appeal.” 5. Ld. Counsel for the assessee submitted that the above grounds of appeal are purely legal grounds and do not require any fresh examination of facts. Therefore, Ld. Counsel for the assessee prayed it may be admitted. 6. Ld. DR objected for admission of the additional grounds as they were never raised before lower authorities and therefore cannot be admitted. 7. Considered the rival submissions and material placed on record, we observe that as the said additional grounds are legal grounds, wherein, the facts are on record and facts do not require fresh investigation, following the decision of Hon’ble Supreme Court in the case of National 4 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., Thermal Power Co., Limited v. CIT 229 ITR 383 (SC), we admit the said additional grounds of appeal. 8. At the time of hearing, Ld. Counsel for the assessee submitted that Ground No. 2 and 5 of grounds of appeal are not pressed, accordingly, the same stand dismissed. 9. Coming to Ground No. 1 which is in respect of disallowing ₹.0.33 lakhs on account of Transfer Pricing adjustments for non-recovery of charges for providing letter of support/comfort, Ld. Counsel for the assessee submitted that this issue is squarely covered by the decision of the Coordinate Bench in the preceding assessment years in assessee’s own case in ITA.No. 2754/Mum/2014 dated 03.02.2021 and ITA.No.3290/Mum/2015 dated 23.02.2022 for the A.Y. 2009-10 and 2010-11 respectively and the Coordinate Bench has adjudicated the issue in favour of the assessee and against the Revenue. Ld. Counsel for the assessee prayed that the same decisions may be adopted for the assessment year under consideration. Copy of the recent order for A.Y. 2010-11 is placed on record. 5 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., 10. Ld. DR agreed that the issues are already decided in favour of the assessee for the earlier years, however, he supported the orders of the Assessing Officer. 11. Considered the rival submissions and material placed on record, we observe that similar issue was considered and adjudicated by the Coordinate Bench in assessee’s own case for the A.Y.2010-11 and decided the issues in favour of the assessee. While holding so the Coordinate Bench held as under: - “021. We find that identical issue arose in case of the assessee for assessment year 2009 – 10 wherein the coordinate bench on identical facts and circumstances in ITA number 2754/M/2014 and ITA number 4203/M/2014 has decided this issue as Under:- “7. We have considered rival submissions in light of the decisions relied upon and perused materials on record. After going through sample copy of letter of comfort/support given to the bank towards loan availed by the AE, we have noticed that there is no liability or responsibility fastened with the assessee for making good the liability of the AE in case of any default. There is nothing on record to suggest that in case of any default by the AE, the outstanding loan will be recovered from the assessee. Pertinently, while sustaining a part of the adjustment made by the TPO, learned Commissioner (Appeals) has equated the letter of comfort/support to corporate guarantee. In our view, on perusal of the letter of comfort/support, it cannot be construed to be in the nature of any sort of guarantee in respect of the loan liability of the AE. The only promise made by the assessee is, it will not make any divestment of the shares during the currency of the loan. In our view, in no way it makes the letter of comfort/support a guarantee of any kind as there is no financial implication on the assessee. On a careful reading of section 92B of the Income Tax Act, 1961 (in short, 'the Act'), more particularly Explanation 1(c), we are of the considered opinion that provision of letter of comfort/support cannot be termed as an 6 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., international transaction within the meaning of the aforesaid provision. Our aforesaid view is well supported by the decisions cited by the learned Counsel for the assessee. Accordingly, we delete the addition of ₹3,28,280/-. This ground is allowed.” 022. We do not find any difference in the facts and circumstances of the case except to the extent of amount of letter of comfort issued by the assessee. The learned CIT – A has also followed the decision rendered by the learned CIT – A for assessment year 2009 – 10 which has been confirmed by the coordinate bench per its order dated 3 February 2021. Therefore, respectfully following the decision of the coordinate bench, we also hold that there cannot be any addition in the hands of assessee on account of comfort letter issued. Accordingly, ground number 2 of the appeal of the learned assessing officer is dismissed.” 12. Since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision in assessee’s own case for the A.Y. 2010-11 and also following the principle of “Rule of consistency”, we allow the ground raised by the assessee. 13. Coming to Ground No. 3 which is in respect of applying Rule 8D and confirming the disallowance to the tune of ₹. 45.12 lakhs u/s. 14A of the Act, Ld. Counsel for the assessee submitted that this issue is squarely covered by the decision of the Coordinate Bench in the preceding assessment years in assessee’s own case in ITA.No. 2754/Mum/2014 dated 03.02.2021 and ITA.No.3290/Mum/2015 dated 23.02.2022 for the A.Y. 2009-10 and 2010-11 respectively and the Coordinate Bench has adjudicated the issue in favour of the assessee and against the Revenue. 7 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., Ld. Counsel for the assessee prayed that the same decisions may be adopted for the assessment year under consideration. Copy of the recent order for A.Y.2010-11 is placed on record. 14. Ld. DR agreed that the issues are already decided in favour of the assessee for the earlier years, however, he supported the orders of the Assessing Officer. 15. Considered the rival submissions and material placed on record, we observe that similar issue was considered and adjudicated by the Coordinate Bench in assessee’s own case for the A.Y.2010-11 and decided the issues in favour of the assessee. While holding so the Coordinate Bench held as under: - “031. Ground number 5 is with respect to the disallowance u/s 14 A restricted by the learned CIT – A to ₹ 5,823,458/–. The fact shows that assessee has earned a dividend of ₹ 224,021,852, which is exempt u/s 10 of The Income Tax Act. The learned AO invoked the provisions of rule 8D and computed the disallowance of Rs 1,00, 26,816/–. The assessee preferred an appeal before the learned CIT – A and submitted that it has computed the disallowance to the extent of ₹ 1,650,877 being the expenditure relating to the salary of certain employees. The learned CIT – A granted relief to the assessee with respect to the proportionate interest amount computed on interest incurred for normal running of the business and restricted the disallowance only to ₹ 5,823,458/–. The revenue is in appeal with respect to restrict of the above disallowance. 032 The learned authorised representative submitted that in the case of the assessee for assessment year 2008 – 09, 2009 – 10 the identical issue arose and same has been decided by the coordinate bench. He further stated that for assessment year 2008 – 09 the 8 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., honourable High Court has confirmed the order of the coordinate bench. In that case, in absence of any satisfaction recorded by ld AO, disallowance was deleted. 033. We find that honourable High Court in INCOME TAX APPEAL NO. 1564 OF 2016 in case of assessee has considered this issue and has upheld the order of the coordinate bench for the reason that there is no satisfaction recorded by the learned assessing officer before applying provisions of rule 8D for making disallowance u/s 14 A of the act. The honourable High Court held as Under: (a) In its return of income, the respondent made a suo-moto disallowance of Rs.15.21 lakhs being the expenditure incurred to earn exempt income under Section 14A of the Act. The Assessing Officer disregarded the same and proceeded to disallow an amount of Rs.1.10 crores under Section 14A of the Act read with Rule 8D of the Rules as expenditure incurred to earn exempt income. Thus, adding Rs.1.10 crores to the income of the respondent. (b) Being aggrieved, the respondent filed an appeal to the CIT(A) but without success. (c) On further appeal, the impugned order of the Tribunal while allowing the appeal held that before invoking the provisions of Rule 8D of the Income Tax Rules, the Assessing Officer has to record his non- satisfaction with the suo moto disallowance of expenditure made towards earning exempt income by the respondent. This exercise not having been carried out by the Assessing Officer before applying Rule 8D of the Income Tax Rules, the disallowance of expenditure to earn exempt income cannot be sustained. (d) This issue is no longer res integra as the Apex Court in Godrej & Boyce Mfg. Co. Ltd. Vs. Dy. CIT, 394 ITR 449 decided the issue in favour of the respondent. In the above case, the Supreme Court has while considering the issue of disallowing of expenditure incurred to earn exempt income observed as under :- "Whether such determination is to be made on application of the formula prescribed under rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of section 9 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., 14A (2) and (3) read with rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable." Thus, Rule 8D of the Rules cannot be invoked where the suo moto disallowance made by the respondent assessee is not found to be satisfactory by the Assessing Officer having regard to the accounts of the assessee. In the absence of recording the aforesaid fact of non-satisfaction in terms of Section 14A(2) of the Act, invocation of Rule 8D is not permissible. (e) Therefore, in view of the above decision of the Apex Court, this question also does not give rise to any substantial question of law. Thus, not entertained.” 034. In view of above facts, as no proper satisfaction has been recorded by the learned assessing officer in terms of the provisions of Section 14 A (2) having regard to the accounts of the assessee about the correctness of the claim of the assessee in respect of expenditure in relation to income which does not form part of the total income Under the act. In view of this ground number 5 of the appeal of the learned assessing officer is dismissed.” 16. Since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision in assessee’s own case for the A.Y. 2010-11 and also following the principle of “Rule of consistency”, we allow the ground raised by the assessee. 17. Coming to Ground No. 4 which is in respect of excess DDT paid by the assessee u/s 115O of the Act, having regard to the beneficial rate as per the applicable Double Taxation Avoidance Agreement (DTAA) for dividends paid to non-resident shareholders, Ld. Counsel for the assessee submitted that this issue is squarely covered by the decision of the 10 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., Coordinate Bench in the preceding assessment years in assessee’s own case in ITA.No. 2754/Mum/2014 dated 03.02.2021 and ITA.No.3290/Mum/2015 dated 23.02.2022 for the A.Y. 2009-10 and 2010-11 respectively and the Coordinate Bench has adjudicated the issue in favour of the assessee and against the Revenue. Ld. Counsel for the assessee prayed that the same decisions may be adopted for the assessment year under consideration. Copy of the recent order for A.Y.2010-11 is placed on record. 18. Ld. DR agreed that the issues are already decided in favour of the assessee for the earlier years, however, he supported the orders of the Assessing Officer. 19. Considered the rival submissions and material placed on record, we observe that similar issue was considered and adjudicated by the Coordinate Bench in assessee’s own case for the A.Y.2010-11 and decided the issues in favour of the assessee. While holding so the Coordinate Bench held as under: - “076. The second additional ground is with respect to the dividend distribution tax. This ground arose in the case of the assessee for assessment year 2009 – 10 wherein the coordinate bench decided it is Under:- 11 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., 22. In the third additional ground numbered as ground No. 5, the assessee has raised the issue of applicability of beneficial rate as per the applicable DTAA to the dividend distribution tax (DDT) paid under section 115-O of the Act and has claimed refund of the excess amount. 23. Having considered rival submissions, we restore the issue to the Assessing Officer for examining assessee's claim of applicability of beneficial rate of tax as per the applicable DTAA to the DDT paid under section 115-O of the Act. This ground is allowed for statistical purposes. 077. Before us, there is no information about the country of residence of those shareholders, whether those shareholders have Tax Residency certificate of that country, there is no submission whether the dividend income is income of shareholders and about how the assessee will claim refund of the taxes , if same is income of the shareholders. Further the host of issues with respect to applicable of DTAA as stated in grounds of appeal by assessee are required o be addressed. Therefore, respectfully following the decision of the coordinate bench in case of assessee itself for assessment year 2009 – 10 we also set-aside this issue back to the file of the learned assessing officer with direction to the assessee to submit its claim with all necessary supporting evidences and certificates and then ld.AO to decide in accordance with the law. Accordingly, this additional ground of appeal is allowed for statistical purposes.” 20. On a careful consideration of the ITAT order in assessee’s own case relating to A.Y. 2010-11, we are of the view that since the issue is exactly similar and facts are also identical, respectfully following the above decision in assessee’s own case for the A.Y. 2010-11 and also following the principle of “Rule of consistency” we remit back this issue to the file of the Assessing Officer for fresh adjudication in the light of earlier orders of the Tribunal in accordance with law. We order accordingly. 12 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., 21. In the result, appeal filed by the assessee is allowed as indicated above. 22. Coming to the appeal of the Revenue in ITA.No. 749/Mum/2017 (A.Y. 2011-12), being aggrieved with the order of the Ld.CIT(A), revenue has raised following grounds of appeal in its appeal: - “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the disallowance on account of Letter of Comfort to 0.04% as against 0.50%, without appreciating the facts of the case. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the A. O to verify the allowability of expenditure incurred us 35(2AB) without appreciating the fact that the expenditure was disallowed by DSIR (as per Certificate in Form No. 3CL) as the same was not incurred for R & D purpose. 3. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting addition of Rs. 7,42,79,174/-, being damaged stock, in the closing stock of the assessee without appreciating the facts of the case." He further erred in directing to reduce the consequential amount of Rs. 204.08 lacs instead of Rs.66.03 lacs being correct difference of closing stock 4. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in restricting the disallowance u/s 14A rw. Rule 8D to Rs. 45,12,029/-, without appreciating the facts of the case. 5. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in allowing Rs. 2,67,89,907/-on account of balance 10% additional depreciation on additions made in A.Y. 2010-11, without appreciating the facts of the case. 6. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in allowing Rs. 58,73,97,000/- on account of expenditure incurred on Trip Scheme without appreciating the fact that the trip expenditure was not expended wholly and exclusively for the purpose of the business 7. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs. 2,22,13,413/-being 13 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., waiver of royalty for two subsidiaries in Bangladesh and Sri Lanka, without appreciating the facts of the case.” 23. With regard to Ground No. 1 and 4 which are in respect of Adjustment of account of letter of support and disallowance u/s. 8D (Section 14A) (net) respectively, these grounds are similar to Ground Nos. 1 and 3 raised by the assessee in ITA.No. 655/Mum/2017, therefore, the decision rendered therein shall apply mutatis mutandis, accordingly, these grounds are dismissed. 24. With regard to Ground No. 2, which is in respect of Reduction in claim made u/s. 35(2AB) for certain R&D expenditure, Ld. Counsel for the assessee submitted that the issue in appeal has been considered by the Coordinate Bench in assessee’s own case in ITA.No.4675/Mum/2015 dated 23.02.2022 and the Coordinate Bench adjudicated the issue in favour of the assessee. Copy of the order is placed on record. 25. Ld.DR supported the orders of the Assessing Officer. 26. Considered the rival submissions and material placed on record, we observe that on similar facts and circumstances, the Coordinate Bench in assessee’s own case for the A.Y. 2010-11 adjudicated the issue and held as under: - 14 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., “023. Ground number 3 is with respect to the direction of the learned CIT – A to the assessing officer to verify the allowability of expenditure incurred u/s 35 (2AB) with respect to the expenditure disallowed by DSIR for research and development purposes. The fact shows that the assessee has Department of scientific and industrial research recognized research and development unit situated at Bhandup in Mumbai. Assessee also built its own new research and development facility, which was also approved. The assessee has incurred both revenue and capital expenditure on in-house research and development facilities during the year and therefore assessee claimed that he it is entitled to weighted deduction u/s 35 (2AB) of the income tax act. The assessee incurred an expenditure of ₹ 22.97 crores; however, as per the certificate issued the eligible expenditure was reduced from ₹ 22.97 crores 222.19 crores. Based on the certificate the learned assessing officer allowed the claim to the extent of ₹ 22.19 crores and thus the claim of the assessee was reduced by ₹ 38.76 lakhs being 50% of the differential research and development expenditure of ₹ 77.42 lakhs incurred by the assessee. 024. The learned CIT – A, on appeal, followed the decision of his predecessor for assessment year 2009 – 10 and directed the learned assessing officer to verify the nature of expenditure which has been disallowed by the authority and if on verification the learned assessing officer finds that the such expenditure was incurred for the purpose of research and development as held in the appellate order in appellants own decision then the learned assessing officer was directed to allow such expenditure to the appellant. 025. The revenue is aggrieved with this direction of the learned CIT – A. We find that identical issue arose in the case of the appeal of the assessee for assessment year 2007 – 08, where the coordinate bench decided this issue as Under:- 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 made 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 expenditure. 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 made 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 expenditure. 15 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., 12. In its return of income for year under consideration, the assessee company had claimed weighted deduction u/s 35(2AB) of the Act on account of expenditure incurred by it on scientific research and 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 activity, expenditure claimed to be incurred at Rs.13,56,47,149/- on R & D was reduced to Rs.13,02,11,457/- by the said authority in the certificate 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 certificate. On appeal, the ld. CIT (A) confirmed the disallowance made by the AO on this issue relying again on the certificate issued by DSIR. 13. We have heard the arguments of both the sides on this issue and also perused the relevant material on record. In support of the assessee's case, the ld. Counsel for the assessee has relied on the decision of the Hon'ble Gujarat High Court in the case of CIT vs Cadila Health Care ltd. 87 DTR 56. A perusal of the judgment passed by the Hon'ble Gujarat High Court in this case, however, shows that the expenditure on R & D was bifurcated by the prescribed authority as per it's certificate in two parts, one incurred inhouse and the other incurred outsider. Relying on the said certificate, the Revenue disallowed the expenditure incurred by the assessee outside its in-house facilities while the Tribunal allowed the same. The Hon'ble Gujarat High Court upheld the decision of the Tribunal holding that merely 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). The issue involved the in the case of Cadila Health Care ltd.(supra) thus was entirely different and even the facts involved in the said case were different from the facts of the assessee's case in as much as the entire expenditure incurred by the assessee in that case on R & D was duly certified by the prescribed authority whereas in the case of the assessee, the same is not certified to be eligible R & D expenditure to the extent of Rs.54.34 lakhs. 14. The ld. Counsel for the assessee has also relied on the decision of the Ahmedabad bench of ITAT in the case of ACIT vs Torrent Pharmaceuticals Ltd. in ITA No.3569/Ahd/2004 dated 13.11.2009 in support of the assessee's case on the 16 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., 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 contained in the certificate issued by DSIR and the same was held to be unsustainable 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 Assessing Officer. It was held by the Tribunal that the relevant provisions of the Act did not contain any specific condition that the deduction u/s 35(2AB) and accordingly the claim of the assessee for deduction u/s 35(2AB) will be restricted 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 opinion, the issue involved in the case of Torrent Pharmaceuticals ltd. thus is similar 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 contended that the claim of the assessee of having incurred the expenditure in question on R & D which is eligible u/s 35(2AB) has not been examined either by 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 this issue to the file of the AO with a direction to decide the same afresh after verifying whether the expenditure in question has been incurred by the assessee on research and development which is eligible for deduction u/s 35(2AB). The appeal of the assessee is accordingly treated as allowed for statistical purpose. 12. In its return of income for year under consideration, the assessee company had claimed weighted deduction u/s 35(2AB) of the Act on account of expenditure incurred by it on scientific research and 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 activity, expenditure claimed to be incurred at Rs.13,56,47,149/- on R & D was reduced to Rs.13,02,11,457/- by the said authority in the certificate issued. Relying on the said certificate, claim of the assessee for the deduction u/s 35(2AB) was reduced by the AO by 17 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., Rs.27,18,846/-being 50% of the R & D expenditure treated to be not eligible by DSIR in its certificate. On appeal, the ld. CIT(A) confirmed the disallowance made by the AO on this issue relying again on the certificate issued by DSIR 13. We have heard the arguments of both the sides on this issue and also perused the relevant material on record. In support of the assessee's case, the ld. Counsel for the assessee has relied on the decision of the Hon'ble Gujarat High Court in the case of CIT vs Cadila Health Care ltd. 87 DTR 56. A perusal of the judgment passed by the Hon'ble Gujarat High Court in this case, however, shows that the expenditure on R & D was bifurcated by the prescribed authority as per it's certificate in two parts, one incurred inhouse and the other incurred outsider. Relying on the said certificate, the Revenue disallowed the expenditure incurred by the assessee outside its in-house facilities while the Tribunal allowed the same. The Hon'ble Gujarat High Court upheld the decision of the Tribunal holding that merely 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). The issue involved the in the case of Cadila Health Care ltd.(supra) thus was entirely different and even the facts involved in the said case were different from the facts of the assessee's case in as much as the entire expenditure incurred by the assessee in that case on R & D was duly certified by the prescribed authority whereas in the case of the assessee, the same is not certified to be eligible R & D expenditure to the extent of Rs.54.34 lakhs. 14. The ld. Counsel for the assessee has also relied on the decision of the Ahmedabad bench of ITAT in the case of ACIT vs Torrent Pharmaceuticals Ltd. in ITA No.3569/Ahd/2004 dated 13.11.2009 in support of the assessee's 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 contained in the certificate issued by DSIR and the same was held to be unsustainable 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 Assessing Officer. It was held by the Tribunal that the relevant provisions of the Act did not contain any specific condition that the deduction u/s 35(2AB) and accordingly the claim of the assessee for deduction u/s 35(2AB) will be restricted to the amount of R & D expenditure as contained in the 18 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., 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 opinion, the issue involved in the case of Torrent Pharmaceuticals ltd. thus is similar 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 contended that the claim of the assessee of having incurred the expenditure in question on R & D which is eligible u/s 35(2AB) has not been examined either by 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 this issue to the file of the AO with a direction to decide the same afresh after verifying whether the expenditure in question has been incurred by the assessee on research and development which is eligible for deduction u/s 35(2AB). The appeal of the assessee is accordingly treated as allowed for statistical purpose.” 026. Therefore, respectfully following the decision of the coordinate bench in assessee‘s own case for assessment year 2007 – 08 the issue has been set-aside to the file of the learned assessing officer for verification, we also confirmed the order of the learned CIT – A – ground number 3 of the appeal of the AO. 27. Respectfully following the above said decision of the Tribunal in assessee’s own case for A.Y. 2010-11, we are inclined to set-aside the issue to the file of the Assessing Officer for verification as per the directions of the earlier Tribunal orders. We order accordingly. 28. With regard to Ground No. 3 which is in respect of Non-Inclusion of Damaged Stock in valuation of closing stock, brief facts of the case and 19 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., the observation/findings of the Assessing Officer in the order u/s 143(3) of the Act are summarized as under: - (i). As per schedule 'M', Part A, of the Annual Report for the year 2009-10, damaged, unserviceable and inert stock had been depreciated by the assessee. Assessee during the scrutiny proceedings was asked to produce valuation of such stock and show cause as to why the same should not be added back to the total income of the assessee. (ii). The assessee made its submissions to the Assessing Officer which has been produced in the Assessing Officer's order. (iii). The Assessing Officer observed that in its submission, the assessee itself had admitted that damaged stock was not entirely in non-saleable condition; that damaged stock was also sold and same was recorded whenever such sale took place. However, the assessee failed to produce realizable value of such stock. Accordingly, assessee's contention of damaged stock being valued at Nil was not accepted by the Assessing Officer. Reliance was also placed on the decision of JCIT v. ITC, ITAT Kolkata Special Bench (2008) 112 ITD 57 and the relevant portion of the decision was also extracted in the Assessing Officer's order. (iv). Further in the past assessment years, the value of damaged stock was considered at 0.5% of the closing stock for finished goods, post giving consequential effect 20 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., in the opening stock (for additions made in the preceding years). However, in this year, the Assessing Officer changed the practice for valuation of damaged stocks and considered the cost price for the stock as value for damaged stocks. (v). Considering the above, Assessing Officer made addition of ₹.6,76,76,174/- (₹. 7,42,79,174/- less ₹.66,03,000/-). Further perusal of the computation it has been observed that the Assessing Officer inadvertently considered gross amount of disallowance of ₹.7,42,79,174/ instead of ₹.6,76,76,174/-. 29. Aggrieved with the above order of the Assessing Officer, assessee preferred an appeal before the Ld.CIT(A). Before Ld.CIT(A) assessee filed detailed submissions. After considering the submissions of the assessee Ld.CIT(A) allowed the ground raised by the assessee with the following observations: - “8.4 I have considered the facts of the Case and submissions of- the appellant as against the observation/findings of the AO in the order. This issue is recurring issue in the case of the appellant. Disallowance to the tune of 0.5% of the value of closing stock for damaged stock was done in the past by the AO has been confirmed by the Hon'ble ITAT in the earlier years from AY 2003-04 to AY 2006- 07 and AY 2008-09. Further following such precedents similar disallowance was confirmed by my predecessor in A.Y. 2009-10 and AY 2010-11. Accordingly in the facts of the case and keeping in mind principles of judicial discipline and consistency, I am not inclined to change the method of valuation of closing stock as proposed by AO. I disallow an amount equal to @ 0.5% of the value of the closing stock for the purpose of valuation of damaged stock. Further the AO has inadvertently reduced an amount of Rs. 66.03 lacs in the computation of disallowance instead of Rs. 204.08 lacs and 21 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., accordingly relief to the extent of Rs. 204.08 lacs with respect to the opening stock is granted. Accordingly this ground of appeal is partly allowed.” 30. Aggrieved revenue is in appeal before us, Ld.DR vehemently argued and supported the findings of the Assessing Officer and he prayed that the method proposed by Assessing Officer may be sustained. 31. Ld. AR submitted that assessee is following this method of making adjustment to the closing stock which is done consistently over the years, since the same method of “accounting of closing” is followed by the assessee there is no loss to the revenue. Accordingly, he prayed that the method adopted by the assessee may be allowed and he relied on the orders passed by Ld.CIT(A). 32. Considered the rival submissions and material placed on record, we observe that assessee is valuing closing stock for damaged stock taking the value at NIL and however, Assessing Officer makes disallowance to the extent of 0.5% of the value of closing stock and the same was confirmed by the Coordinate Bench in the earlier years from A.Y. 2003-04 to 2006-07 and A.Y. 2008-09. We further observed that following the decision of the ITAT, the Ld.CIT(A) in A.Y: 2009-10 and A.Y. 2010-11 had followed the same. Respectfully following the earlier decision of the 22 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., ITAT, Ld.CIT(A) in the present appeal also allowed the same. Considering the fact on record and also this method is consistently followed by the assessee over the years there is no loss to the revenue. Accordingly, we do not find any reason to interfere with the findings of the Ld.CIT(A). Accordingly, ground raised by the revenue is dismissed. 33. With regard to Ground No. 4 which is in respect of Balance 10% additional depreciation on addition made in earlier year, Ld. AR submitted that this issue is squarely covered in assessee’s own case for A.Y.2010-11 and Coordinate Bench decided the issue in favour of the assesse. 34. Ld.DR vehemently supported the orders of the Assessing Officer. 35. Considered the rival submissions and material placed on record, we observe that similar issue was considered and adjudicated by the Coordinate Bench in assessee’s own case for the A.Y. 2010-11 and decided the issue in favour of the assessee. While holding so the Coordinate Bench held as under: - “035. Ground number 6 is in relation to allowing the additional depreciation at the rate of 10% amounting to Rs 1,51,65,251/–. The claim of the assessee is that according to the provisions of Section 32 (1) (iiia) the assessee is eligible to claim 20% additional depreciation on any Machinery or plant , acquired after 31st of March 2005. As per the proviso to Section, if the assessee has put to use it for less than 1 80 days in a previous year, the deduction in respect of depreciation 23 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., shall be restricted to 50%. The assessee has already claimed 10% of the additional depreciation in financial year 2008- 2009 (assessment year 2009 – 10) and therefore it claimed that balance 10% of the depreciation should be allowed to the assessee in financial year 2010 – 11. 036. The learned assessing officer rejected the claim of the assessee holding that there is no such provision to claim balance 10% additional depreciation in subsequent years for addition made in earlier year. In past year learned CIT – A who allowed the claim of the assessee following the decision of coordinate bench in Cosmo films Ltd 24 taxmann 189 and SIL Ltd 26 taxmann 78, The learned assessing officer did not followed order of the learned CIT – A in earlier year also and made disallowance of Rs 1,51,65,251/–. 037. On appeal before the learned CIT – A, he allowed the claim of the assessee based on his own decision for assessment year 2008- 2009 in case of the assessee. We find that the identical issue has been decided in favour of the assessee in the assessee‘s own case for assessment year 2009 – 10 in ITA number 2754/M/2014 and ITA number 4203/M/2014 by coordinate bench as Under:- “38. In ground No. 5, revenue has challenged the decision of learned Commissioner (Appeals) in allowing assessee's claim of additional depreciation. 39. Briefly the facts are, in course of assessment proceedings, the Assessing Officer noticed that the assessee has claimed carried over amount of additional depreciation relating to the immediately preceding assessment year. Therefore, he called upon the assessee to justify the claim. However, the assessee furnished a detailed submission stating that the balance portion of additional depreciation, which could not be claimed in the preceding assessment year, has to be allowed in the impugned assessment year; however, the Assessing Officer was not convinced. Accordingly, he disallowed the additional depreciation claimed of ₹ 1,72,86,752/-. Assessee contested the disallowance before learned Commissioner (Appeals). Taking note of the decision cited by the assessee including the decision of the Tribunal in assessee's own case for Assessment Year 2008 09, learned Commissioner (Appeals) deleted the disallowance made by the Assessing Officer. 40. The learned Departmental Representative supporting the decision of the Assessing Officer submitted, additional depreciation is a onetime allowance granted to the assessee for installing new plant and machinery. Any unclaimed amount cannot be set off in the subsequent assessment year. 24 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., 41. The learned Counsel for the assessee strongly relying upon the decision of the first appellate authority submitted, the issue is now squarely covered by a number of judicial precedents including the decision of the Tribunal in assessee's own case. 42. We have considered rival submissions and perused materials on record. The facts on record clearly reveal that assessee had purchased and installed new plant and machinery in the preceding assessment year, which is eligible for additional depreciation @20%. However, since the new assets were put to use for less than 180 days in the preceding assessment year, the claim of additional depreciation allowable at 20% was restricted to half of it, i.e. 50%. Thus, in effect, the assessee was allowed additional depreciation of 10%. Now, it is well settled by a number of judicial precedents that if for use of new plant and machinery for a period of less than 180 days the entire amount of additional depreciation cannot be claimed in the subject assessment year, the balance unclaimed amount can be claimed in the subsequent assessment year. It is also a fact on record, against similar claim allowed by learned Commissioner (Appeals) in assessee's own case in Assessment Year 2008- 09, the revenue has not preferred any appeal before the Tribunal. In view of the above, we uphold the decision of learned Commissioner (Appeals) on the issue. Ground raised is dismissed. 038. Therefore, respectfully following the decision of the coordinate bench in assessee‘s own case for assessment year 2009– 10, ground number 6 of the appeal is dismissed holding that the learned CIT appeal is correct in allowing additional depreciation at the rate of 10% for asset purchased in the earlier year amounting to ₹.151,65,251/– 36. Since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision in assessee’s own case for the A.Y. 2010-11 and also following the principle of “Rule of consistency” we dismiss the ground raised by the revenue holding that Ld.CIT(A) is correct in allowing the additional depreciation at the rate of 25 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., 10% for asset purchased in the earlier year. Ground raised by the revenue is dismissed. 37. With regard to Ground No. 6 which is in respect of expenditure incurred on trip scheme, Ld. Counsel for the assessee submitted that this issue is squarely covered in assessee’s own case relating to A.Y. 2010-12. Coordinate Bench considered the issue and adjudicated in favour of the assessee. Ld. Counsel for the assessee prayed that the same may be adopted for the year under consideration. 38. Ld.DR relied on the orders of the Assessing Officer. 39. Considered the rival submissions and material placed on record, we observe that similar issue was considered and adjudicated by the Coordinate Bench in assessee’s own case for the A.Y. 2010-11 and decided the issue in favour of the assessee. While holding so the Coordinate Bench held as under:- “039. Ground number 7 of the appeal is against the decision of the learned CIT – A in allowing deduction of ₹ 252,660,686/– on account of expenditure incurred on trip scheme. The learned assessing officer noted that on examination of the details of advertisement and promotion expenses that assessee has incurred ₹ 41.97 crores on gift – Target based. He further found that assessee has incurred an expenditure of ₹ 252,660,686 under the trip scheme. The learned assessing officer further found that the above amount was paid to SOTC and the Thomas Cook India Ltd for foreign trip of its dealers. 26 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., He therefore held that these expenditures are not expended wholly and exclusively for the purposes of its business. The learned AO further noted that the expenses incurred by the assessee have obviously not been credited in the books of the correct dealers; however, most of the persons who undertook the travel at the cost of the company were partners and directors of those firms. He further held that it is actually a commission paid by the assessee company to its dealers and was liable to deduction of tax at source u/s 194H of the act and hence disallowable u/s 40 (a) (ia) of the act. Accordingly, he disallowed the above sum. 040. on examination of the details of advertisement and promotion expenses that assessee has incurred ₹ 41.97 crores on gift – Target based. He further found that assessee has incurred an expenditure of ₹ 252,660,686 under the trip scheme. The learned assessing officer further found that the above amount was paid to SOTC and the Thomas Cook India Ltd for foreign trip of its dealers. He therefore held that these expenditures are not expended wholly and exclusively for the purposes of its business. The learned AO further noted that the expenses incurred by the assessee have obviously not been credited in the books of the correct dealers; however, most of the persons who undertook the travel at the cost of the company were partners and directors of those firms. He further held that it is actually a commission paid by the assessee company to its dealers and was liable to deduction of tax at source u/s 194H of the act and hence disallowable u/s 40 (a) (ia) of the act. Accordingly, he disallowed the above sum. Hence, ld AO misconceived the provisions of Section 194H by making the disallowance. He also followed his own decision for assessment year 2009 – 10. 041. It is also stated before us that the issue squarely covered in favour of the assessee for assessment year 2009 – 10 in ITA number 2754/M/2014 and ITA number 4203/M/2014 wherein the coordinate bench held as Under:- 43. In ground 6, the revenue has challenged deletion of disallowance of ₹ 1,610.45 lakhs on account of expenditure incurred on trip scheme. 44. Briefly the facts are, during the assessment proceedings, the Assessing Officer noticed that the assessee had debited an amount of ₹ 16,10,45,094/- towards expenditure incurred on account of trip scheme. Noticing this, he called upon the assessee to justify the claim. After verifying the details furnished by the assessee, the Assessing Officer observed that the amount was paid to SOTC for foreign trip of its dealers. Being of the view that the expenditure incurred was not for the purpose of assessee's business, he held the same as not 27 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., allowable. Further, he held that since the assessee has not deducted tax at source on the expenditure incurred, which is nothing but in the nature of commission paid to dealers and distributors, the same has to be disallowed under section 40(a)(ia) of the Act. Accordingly, he disallowed the deduction claimed by the assessee. Assessee contested the disallowance before the first appellate authority. After considering the submissions of the assessee in the context of facts and materials on record, learned Commissioner (Appeals) deleted the disallowance made by the Assessing Officer. 45. Strongly relying upon the observations of the Assessing Officer, the learned Departmental Representative submitted, the expenditure incurred by the assessee for trip scheme is nothing but commission paid to dealers and distributors; hence, subject to deduction of tax under section 194H Act. The assessee having failed to do so, the amount has to be disallowed under section 40(a) (ia) of the Act. 46. The learned Counsel for the assessee submitted, there is no question of payment of any commission to the dealers and distributors as there is no principal - agent relationship between the assessee and them. He submitted, the transactions with the distributors were carried out purely on principal-to-principal basis. Therefore, there is no liability to deduct tax under section 194H of the Act. In support, the learned Counsel relied upon the following decisions:- 1. CIT, Pune vs. Intervet India Pvt. Ltd. (ITA 1616/2011-Bombay High Court 2. Pr. GT vs. Reliance Communication Infrastructure Ltd. (ITA No. 702 of 12017-Bombay High Court 3. DOT vs. BCH Electric Ltd. (ITA 1336/Kol/2012) 4. ACIT vs. Raymond Ltd. ITA 5889/M/10 5. CIT vs. Piramal Healthcare Ltd. 230 Taxman 505 (Bom) 6. CIT vs. Qatar Airways 332 ITR 253 (Bom) 7. Radhasaomi Satsang vs. CIT (193 ITR 321 (SC) 47. Without prejudice, the learned Counsel submitted, since no amount has been paid or credited to the distributors, question of deduction of tax at source does not arise. Further, he submitted, whatever amount the assessee has paid to 28 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., SOTC has been subjected to TDS provisions. Therefore, there cannot be any further disallowance under section 40(a)(ia) of the Act. Further, he submitted, the expenditure incurred is purely for the purpose of business as it is in the nature of an incentive inked to quantum of purchases made by the dealer. Finally, he submitted, the assessee is claiming such deduction for past 20 years. Except the impugned assessment year, the expenditure has never been disallowed. Therefore, there is no reason to deviate in the impugned assessment year. 48. We have considered rival submissions and perused materials on record. As could be seen from the facts on record, to expand its business the assessee has devised a trip scheme wherein it organized foreign trips to its dealers and distributors based on achieving a specific target assigned by the assessee. On achieving such target, the dealer/distributor is entitled to undertake the trip organized by the assessee through SOTC. Thus, from the aforesaid facts it is very much clear that the entire trip scheme is for the purpose of expanding assessee's business by encouraging the dealers and distributors to achieve a specific target of purchase. Thus, the scheme is closely linked to assessee's business activity. It is also a fact that the assessee has not paid any amount to the dealers and distributors, but amount spent has been paid to SOTC for organizing the trip. It is also a fact on record that the amounts paid to SOTC has been subjected to TDS as per the relevant provision. Therefore, the allegation of the Assessing Officer that the amount has not been subjected to deduction of tax is without any basis. As regards the applicability of section 194H of the Act, by no means, the Assessing Officer has established on record that dealers/distributors are agents of the assessee. Further, as we find, the trip scheme has been introduced by the assessee from past 20 years and the deduction claimed by the assessee on account of such trip scheme has never been disallowed by the Assessing Officer except for the impugned assessment year. Therefore, even applying the rule of consistency, the expenditure claimed by the assessee has to be allowed. Accordingly, we do not find any infirmity in the decision of learned Commissioner (Appeals). Ground raised is dismissed. 042. Therefore respectfully following the decision of the coordinate bench in assessee‘s own case for assessment year 2009 – 10, in absence of any contrary evidence, we uphold the order of the learned CIT – A deleting the above disallowance of ₹ 252,660,686/–. Accordingly, ground number 7 of the appeal is dismissed.” 29 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., 40. Since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision in assessee’s own case for the A.Y. 2010-11 and also following the principle of “Rule of consistency” we sustain the order of the Ld.CIT(A) and reject the ground raised by the Revenue. Ground raised by the revenue is dismissed. 41. With regard to Ground No. 7 which is in respect of waiver of royalty income received from Bangladesh and Srilanka, relevant facts are assessee have various Associated Enterprises all over the globe from where they receive royalty for providing technology, trade mark and allied services. This royalty is computed @3% of the of the net sales by majority of Associated Enterprises. During the year under consideration Assessing Officer opined that assessee have partly waived royalty receivable from its two subsidiary companies situated in Srilanka and Bangladesh. Further, he observed that similar waiver was granted to these subsidiaries in A.Y. 2008-09 to A.Y. 2010-11. When the assessee was asked to substantiate the same assessee has submitted as under: - “In the above context, please refer our submission vide our submission dated 16.09.14 and also our submission dated 12.01.15 where we had submitted copy of royalty agreement & copy of boar resolution for waiver of royalty. In the above context, we would like to reiterate that we have an agreement interralia with its indirect subsidiaries at Bangladesh & Srilanka according to which the company has to receive royalty of 3% 30 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., of net sales of both the Units. However, considering the financial position of the subsidiaries, the company had agreed to waive part of the royalty. Hence, during the year we have credited 1% of royalty amount to our profit and loss account instead of 3% as per the agreement. In the above context, we would like to draw your attention to Section 5 (1) of the Income Tax Act, which reads as under: 5 (1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which a) is received or is deemed to be received in India in such year by or on behalf of such person; or b) accrues or arise or is deemed to accrue or arise to him in India during such year; or c) accrues or arise to him outside India during such year" The basic principle of accrual of income is that the assessee must have acquired a right to receive the same; there must be a debt owed by somebody to him. In this context, we would like to rely upon the Apex Court decision in the case of E.D. Sasson V. CIT (26 ITR 27). The relevant extracts of the decision are re-produced as under: "If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be debt owed to him by somebody. Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him." We would also like to draw your attention to the decision of Apex Court in the case of CIT VS Shoorji Vallabhadas & Co (46 ITR 144), wherein the following principle has been laid down: "Income-tax is levy of income, Though the Income-tax Act take into account two point in time at which the liability to tax is attracted, viz, the accrual of the income or its receipt, yet the substance of the matter is the income. If the income does not result at all, there cannot be a tax, even though in book keeping, an entry is made about a hypothetical income. Which does not materialize. Where income has, in fact, been 31 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., received and subsequently given up in such circumstances that it remains the income of the receipts, even though given up, the tax may be payable. Where, however, the income can be said not have resulted at all. There is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account." Further, we would like to rely upon the Madras High Court decision in the case of V. Ramaswami Naidu And Another V. CIT (35 ITR 33) held that income may accrue to an assesse without actual receipt, if the assessee a right to receive the income it can be said to have accrued to him, though it may be received later, on its being ascertained. Reliance is also placed on the decision of the Hon'ble High Court in the case of CIT, Tamilnadu Vs Motor Credit Co Pvt Ltd (127 ITR 572). In this judgment, the Hon'ble High Court has held, inter alia, the following "The regular mode of accounting determines only the mode of computing the taxable income and the point of time at which the tax liability is attracted. It cannot determine or affect the range of taxable income or the ambit of taxation. Where no income has resulted it cannot be said that income has accrued merely on the ground that the assessee had been following the mercantile system of accounting. Even if the assessee makes a debit entry to that effect, still no income can be said to have accrued to the assessee. If no income has materialized, there can be no liability to tax on a hypothetical income. It is not the hypothetical accrual of income based on the mercantile system of accounting followed by the assessee that has to be taken into account, but what should be considered is whether the income has really materialized or resulted to the assessee. The question whether real income has materialzed to the assessee has to be considered with reference to commercial and business realities of the situation in which the assessee has been placed and not with reference to his system of accounting. We are entitled to receive royalty from our overseas subsidiaries @ 3% on net sales price of product sold by our overseas subsidiaries. The nets sales price of the products sold can be ascertained only at the end of the financial year, However, even before the end of the financial year, on representation made by our overseas Units, we have decided to waive the royally. Since the decision to waive the royalty is taken before the closure of the financial year before the amount of net sales price is ascertained, no income can be considered to have accrued or arisen. Further, there is no right to receive the 32 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., said royalty. In view of the foregoing, we submit that we submit that, no income can be said to have accrued to us under Section 5 (1) of the Income Tax Act in respect to such royalty waived off before the closure of the financial year. Further, we would like to draw your kind attention to Section 90(2) of the Income Tax Act, which reads as under: "Where the Central Government has entered into an agreement with the Government of any country outside India under sub section (1) for granting relief of tax, or as the case may be avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to the assessee. As you will observe from the above-quoted provision, where there is a Double Taxation Avoidance Agreement with Bangladesh as well as with Srilanka. The provisions of the Act are to apply only if the provision of the Act are more favourable to the taxpayer. To put the same thing differently, where there is any such Treaty, it is the provision of the Act or the provision of the Treaty, whichever is more favourable to the taxpayer, that shall apply. Article 12 of the Double Taxation of Avoidance Agreement with Bangladesh & Srinlamka deals with Royalty. Article 12.3 of the both the DTAA, which defines royalty, reads as under: 12. (3) The term royalties" as used in this Article means payment of any kind received as a consideration for the use of or the right to use, any copyright or literary, artistic or scientific work, including cinematograph films, or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment or for information concerning industrial commercial or scientific experience but does not include any payment in respect of the operation of mineral deposits, sources and other natural resources. Thus, from a plain reading of the above -quoted definition it is clear that " royalty" is defined to mean payments received" as a consideration for the use of............. However, in the present case, since we have foregone or waived our rights to receive royalty, the question of it being received does not arise and accordingly, even under Article 12 of the DTAA, no royalty accrues to us. 33 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., Thus, bases on facts, judicial pronouncements and, royalty does not accrued or arise to us under the Income Tax Act and DTAA and accordingly the same is not chargeable to tax. We would like to submit that a similar full/part waiver was given to our overseas subsidiary in AY 2008-09, 2009-10 & 2010-11 & same had been accepted by the assessing officer in those respective years 42. After considering the submissions of the assessee, Assessing Officer rejected the same and made the addition relating to royalty income receivable to the extent of ₹.2,22,13,413/- with the following observations: - (i). “The assessee company is a public limited company being listed on BSE and NSE, where in the general public has put in their money as investments. It is unlike a private limited company wherein arbitrary decisions by management can be affordably taken and executed. In a public limited listed company, having huge invested money of general public, the decisions are required to be supported by due rationalism and logical satisfactions, in the interest of company and general public at large (ii). The reasons stated by the assessee for reaching the satisfaction and taking the decision to waive off part receivable royalty are not supported by any logic or calculation. The mere submission of the assessee in this regard is that, "However, considering the financial position of the subsidiaries, the company had agreed to waive part of the royalty. Hence, during the year we have credited 1% of royalty amount to our profit and loss account instead of 3% as per the agreement." The assessee repeatedly has submitted that since the company had agreed to waive part of the royalty from these two AEP's, hence royalty does not accrued or arise to them. At no point the assessee placed on record, the basis of reaching this 34 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., decision by the management and how this decision is beneficial to the interest(s) of company. (iii). In the immediate case, the assessee company has decided to charge only 33% of the total royalty which was otherwise due to them as receivables by virtue of a written agreement with these AEP's, by waiving off 2/3" part of royalty receivable by simply mentioning. "considering the financial position of the subsidiaries, the company had agreed to waive part of the royalty" without assigning any basis as to by which formula or method or rule or even logic the 66% of royalty is waived off, thereby showing the arbitrariness of the decision of the company, which definitely has resulted in making an Indian company bleed of its legitimate income at the cost of foreign subsidiaries (AEP's) situated in foreign countries. (iv). Here an element of tax evasion on the part of Assessee Company is apparently visible, in the sense that all the expenses incurred on Brand Building and technical support(s) given to these subsidiaries (at Bangladesh & Srilanka) are duly booked and claimed by the assessee company in lieu of which the company has acquired rights (through written and signed agreement) to receive the Royalty income as legitimate profits / incomes due to it Since it is in lieu of use of their Brand Name and technical services provided by them, that the assessee company acquires the right to receive royalty, and it is a matter of record that assessee company is incurring huge cost by way of advertisements etc on making and establishing its Brand Value besides expenses on providing technical support to AEP's, hence I am of the considered view that the legitimate right to receive corresponding income (royalty) cannot be waived off through an arbitrary decision, particularly till such time as the original written and duly signed agreement is in place. The arbitrary decision cannot override the specific provisions of the duly signed agreement of the assessee company with these two AEP's conferring the rights to receive the royalty income. The working of royalty accounted & waived by the company is given below: 35 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., Name of the Unit Total Royalty Receivable Accounted as Income Waiver Rate of Royalty 3% 1% 2% Asian Paints (Lanka) Ltd. 5,460,015 1,820,005 3,640,010 Asian Paints (Bangladesh) Ltd 27,860,104 9,286,701 18,573,403 Total 33,320,119 11,106,706 22,213,413 43. Aggrieved assessee, preferred an appeal before the Ld.CIT(A) and before Ld.CIT(A) assessee submitted as under: - (i). The appellant has submitted that based on the Form 3CEB filed by them, the AO has made reference to the TPO. The fact of waiver of royalty for two subsidiaries was disclosed in the TP Study report and were provided to the TPO. Post considering the submissions, the TPO has accepted the claim of the appellant and has not made any additions. (ii). Once the TPO has not made any revision to the arm's length price, it would not be open to the AO to make any further adjustment in the arm's length price. AO would not have the right to re-determine the arm's length price. (iii). The appellants have relied on the decision of Delhi High Court in the case of Oracle India Pvt. Ltd., Delhi ITAT in the case of Copal Research India Pvt. Ltd. and Hon'ble Mumbai ITAT in the case of American Express Services India Ltd. (iv). The AO has exceeded his jurisdiction and accordingly the addition made by the AO is bod in law and needs to be deleted. (v). On Merits, the appellants have informed that similar waiver was granted in AY 2008-09 to AY 2010-11 and the same was accepted by the AO/TPO in those years and hence following the principles of consistency, no addition needs to be made. (vi). As per the provisions of the DTAA, royalty received from Srilanka or Bangladesh can only be taxed and the royalty waived has not been received and hence cannot be taxed. 36 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., (vii). Relying on section 5(1) of the Income Tax Act as well as various decisions, the appellants submit that since the waiver was approved before the closure of the financial year and no income has accrued to the appellant, there cannot be any notional addition with respect to Royalty. (viii). Accordingly, the addition made by the AO needs to be deleted." 44. After considering the submissions of the assessee Ld.CIT(A) allowed the ground raised by the assessee with the following observations: - “14.4 I have considered the facts of the case and submissions of the appellant. The contentions raised by the appellant as against their grounds of appeal are being discussed and decided as under: 14.5 Appellant has granted waiver of royalty to its two subsidiaries viz. Bangladesh and Srilanka on account of commercial and business related considerations. Similar waiver was granted to the subsidiaries from AY 2008 09 to AY 2010-11 and the AO/TPO has not made any additions with respect to the same. The AO had made reference to the TPO. The fact of waiver of royalty for two subsidiaries was disclosed in the TP Study report and was provided to the TPO. Post considering the submissions, the TPO has not made additions with respect to the royalty waiver. It appears that similar wavers allowed by the assessee to its AEs in earlier years were not adjusted by the AO/ TPO. Even otherwise, once the TPO has not made any revision to the arm's length price, it would not be open to the AO to make any adjustment in the arm's length price accepted by the TPO. This position has been accepted by the Delhi ITAT in the case of Copal Research India Pvt. Ltd. vs. Income Tax Officer [ITA No. 1713/Del/2014] as well as Mumbai ITAT in case of ACIT 2(1) vs. American Express Services India Ltd. [ITA No. 40016/Mum/2007]. Accordingly, the ground of appeal is allowed.” 45. At the time of hearing, Ld. DR vehemently argued and supported the findings of the Assessing Officer. 46. On the other hand, Ld. AR submitted before us three propositions in this regard, which are reproduced below: - 37 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., “Proposition 1: Assessing Officer cannot make adjustments with respect to international transactions for which reference was made to the TPO based on section 92CA(4) of the Act. For the above proposition Ld. Counsel for the assessee relied upon the following decisions: - (i). ACIT 2(1) v. American Express services India Ltd (ITA No: 4106/M/2007)- Mumbai ITAT (ii). Copal Research India Pvt Ltd v. ITO (ITA No; 1713/Del/2014) - Delhi ITAT. Proposition 2: As per the DTAA between India - Bangladesh and India- Srilanka, royalty income is taxable only when royalty is received. Since the balance 2% royalty was never received, the same cannot be taxed as per DTAA, for the above proposition Ld. AR relied on the following case law: - (i). Diageo India Pvt Ltd Vs ACIT (ITA No: 1228/M/2015 & 1813/M/2015) (ii). CIT Vs Pramerica ASPF II Cyprus Holding Ltd (ITA No: 1824/2016) - Mumbai High Court (issue relating to interest income) Proposition 3: only income accrued and received is taxable under Income Tax Act and he relied on the decision of the Hon'ble Supreme Court in the case of CIT v. Shoorji Vallabhadas & Co [46 ITR 0144].” 47. Considered the rival submissions and material placed on record, we observe from the record that the assessee has granted waiver of royalty to its two subsidiaries i.e. Bangladesh and Srilanka on account of commercial and business considerations. We observe that assessee has granted similar waiver in the past to the above said subsidiaries from A.Y.2008-09 to A.Y. 2010-11 and the assessee has disclosed the above 38 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., said information in its T.P. Study Report. When the matter was referred to TPO, TPO has considered this information and do not propose any addition relating to these additions. It is fact on record that assessee has waived Royalty income to Bangladesh and Srilanka Subsidiaries for business consideration. It is also fact on record that the TPO has not proposed any addition u/s. 92CA of the Act and further, we observe that as per the provision of DTAA, the Royalty income cannot be recognized as revenue until such royalty are paid. In the given case the assessee has never received any Royalty from these Associated Enterprises. 48. In the similar situation the Coordinate Bench in the case of Diageo India Pvt Ltd v. ACIT (supra) held as under: - “43. On this issue, the assessee has claimed deduction of Rs.6.28 Crores paid as royalty to Diageo North America and service tax thereof Rs.65.05 lakhs. The AO disallowed the same by holding that expenditure was not wholly and exclusively for the purpose of business. While doing so, the AO noted that earlier this royalty was not paid as the AE has waived off the same because of economic condition of the assessee. But as the sales started improving it had started paying the royalty to the AE we.f. A.Y.2009-10 onwards. That w.e.f. 1st July 2008, royalty percentage was increased from 1% to 5%. Further, the AO had noted that assessee had stated that royalty was paid to Associated Enterprises the benchmarking of payment of royalty transaction has been submitted to the TPO. The TPO after referring to the submission has made no disallowance in respect of benchmarking adopted by the assessee. It was further claimed that royalty is bonafide expenditure which is incurred for using Smirnoff brand i.e. wholly and exclusively for business purpose of the assessee. While considering the objection of the assessee in this regard, the DRP noted that the assessee has not produced royalty agreement. It observed that this issue was also considered in the DRP order for 39 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., A.Y.2009-10. Referring to the above, the DRP held that the same has to be disallowed u/s.37(1) of the Act. While giving effect to the above DRP direction, as regards the disallowance of royalty expenditure of Rs.6,28,34,827/- which was proposed to be disallowed u/s.37(1) in the draft assessment, the AO held that since this claim has been rejected by the DRP, the AO was making addition of Rs.6,28,34,827/-. In this regard, upon hearing both the Counsel and perusing the records, we find that it is the claim of the assessee that payment of royalty is an international transaction and assessee has submitted the benchmarking report and the Transfer Pricing Officer has not made any adjustment. In this view of the matter, the Transfer Pricing officer has not made any adjustment. Hence, it was not open to the AO to apply the benefit test and make the disallowance u/s.37(1) of the Act, without proper examination of all aspects of the claim. We find that assessee’s submission in this regard have not been properly appreciated by the Assessing Officer, hence, in our considered opinion, the aforesaid issue deserves to be remitted to the AO for fresh consideration. We direct accordingly.” 49. Respectfully following the above said decision, we are inclined to accept the findings of the Ld.CIT(A) and we do not see any reason to disturb the same. Accordingly, ground raised by the revenue is dismissed. 50. In the result, appeal filed by the Revenue is dismissed. Order pronounced in the open court on 28 th July, 2022 Sd/- Sd/- (AMIT SHUKLA) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 28.07.2022 Giridhar, Sr.PS 40 ITA NO. 655 & 749/MUM/2017 (A.Y: 2011-12) M/s. Asian Paints Ltd., Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum