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

ITA 7253/MUM/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2358 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 19-11-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 06-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Gift; Depreciation; Transfer pricing; Double taxation relief; Earning of tax free income; Revenue expenditure
• Section: 14A; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K, MUMBAI BEORE SHRI SAKTIJIT DEY,JUDICIAL MEMBER AND SHRI N.K.BILLAIYA, ACCOUNTNT MEMBER ITA NO. 7253/MUM/2012 (ASSESSMENT YEAR : 2008-09) ASIAN PAINTS LTD., 6A, SHANTI NAGAR, SANTACRUZ (EAST), MUMBAI 400 055 PAN: AAACA 3622K ... APPELLANT VS. THE ADDL. CIT- LTU, 29 TH FLOOR, WORLD TRADE CENTRE, CUFFE PARADE MUMBAI 400005 .... RESPONDENT ITA NO. 23/MUM/2013 (ASSESSMENT YEAR : 2008-09) THE ADDL. CIT- LTU, 29 TH FLOOR, WORLD TRADE CENTRE, CUFFE PARADE MUMBAI 400005 .... APPELLANT VS. ASIAN PAINTS LTD., 6A, SHANTI NAGAR, SANTACRUZ (EAST), MUMBAI 400 055 ...RESPONDENT ASSESSEE BY : SHRI K. SHIVRAM REVENUE BY : SHRI PAWAN KUMAR DATE OF HEARING : 18/11/2015 DATE OF PRONOUNCEMENT : 20/11/2015 2 ITA NO. 7253/MUM/2012 ITA NO.23/MUM/2013 (ASSESSMENT YEAR : 2008-09) ORDER PER N.K.BILLAIYA,AM: ITA NO.7253/MUM/20012 AND 23/MUM/2013 ARE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE AGAINST THE VERY SA ME ORDER OF THE CIT(A)-15, MUMBAI DATED 25/10/2012 PERTAINING TO T HE ASSESSMENT YEAR 2008-09. SINCE BOTH THESE APPEALS ARE HEARD TOGETHER, THEY ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CO NVENIENCE. ITA NO.7253/MUM/2013-ASSESSEES APPEAL:- 2. THE ASSESSEE HAS RAISED FIVE SUBSTANTIVE GROUNDS OF APPEAL AND HAS ALSO RAISED ONE ADDITIONAL GROUND. AT THE VE RY OUTSET, LD. SENIOR COUNSEL FOR THE ASSESSEE STATED THAT THE ISSUE INVO LVED IN THE GROUNDS OF APPEAL ARE COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEE OWN CASE FOR EARLIER ASSESSMENT YEARS. LD. DR FAIRLY CONCEDED TO THIS. 3. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE OR DERS OF THE AUTHORITIES BELOW AND WITH THE ASSISTANCE OF THE LD . SENIOR COUNSEL, WE HAVE GONE THROUGH THE EARLIER DECISION OF THE TRIBU NAL IN ASSESSEESS OWN CASE. WE FIND FORCE IN THE CONTENTION OF THE L D. SENIOR COUNSEL, EXCEPT FOR GROUND NO.3 AND THE ADDITIONAL GROUND, T HE ISSUES INVOLVED IN ALL OTHER GROUNDS HAVE BEEN DECIDED BY THE TRIBU NAL IN ASSESSEES OWN CASE IN EARLIER ASSESSMENT YEAR. 4. LET US NOW PROCEED BY CONSIDERING EACH GROUND OF APPEAL ONE BY ONE. GROUND NO.1 RELATES TO THE DISALLOWANCE OF RS .2.47 LACS BEING 10% OF EXPENDITURE INCURRED ON ACCOUNT OF DISTRIBUTION OF GIFT ARTICLES. AN IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL IN A SSESSEES OWN CASE IN 3 ITA NO. 7253/MUM/2012 ITA NO.23/MUM/2013 (ASSESSMENT YEAR : 2008-09) ITA NO.1937/MUM/2010. THE TRIBUNAL HAS CONSIDERED AN IDENTICAL ISSUE AT PARA-33 OF ITS ORDER AND AT PARA-34, THE TRIBUN AL HAS RESTRICTED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER TO 10% O F THE TOTAL EXPENSES. RESPECTFULLY FOLLOWING THE DECISION OF C O-ORDINATE BENCH, WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALL OWANCE TO 10% OF THE TOTAL EXPENSES, WHICH WE FIND THE ASSESSING OFFICER HAS DONE, THEREFORE, THIS GROUND IS DECIDED AGAINST THE ASSESSEE. 5. GROUND NO.2 RELATES TO AN ADHOC ADDITION OF RS. 15.40 LACS BEING 0.5% OF VALUE OF CLOSING STOCK OF FINISHED GOODS AF TER REDUCING THE OPENING STOCK ON ACCOUNT OF NON-INCLUSION OF DAMAG ED STOCK IN VALUATION OF CLOSING STOCK. 5.1 AN IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUN AL IN ASSESSEES OWN CASE IN ITA NO.408/MUM/2010 AT PARA-15 OF ITS ORDER, WHEREIN THE TRIBUNAL HAS FOLLOWED THE FINDING OF THE CO-ORD INATE BENCH GIVEN IN EARLIER YEARS AND CONCLUDED BY HOLDING THAT CONSI STENT WITH THE ABOVE STAND WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS GROUND NO.3 OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE FINDING OF T HE CO-ORDINATE BENCH(SUPRA), THIS GROUND IS ALSO DISMISSED. 6. GROUND NO.3 RELATES TO THE DISALLOWANCE MADE UND ER SECTION 14A R.W. RULE 8D OF THE ACT. THE ASSESSING OFFICER HAS CONSIDERED THIS ISSUE AT PAGE-16 AT PARA-7 OF HIS ORDER. DURING THE COUR SE OF THE SCRUTINY ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME FROM DOMESTIC COMPANIES/ MUTUAL FUNDS AT RS.24,33,73,938/-, WHICH IS CLAIMED AS EXEMPT UNDE R SECTION 10 OF THE ACT. THE ASSESSEE WAS ASKED TO EXPLAIN WHY DISALLO WANCE SHOULD NOT BE 4 ITA NO. 7253/MUM/2012 ITA NO.23/MUM/2013 (ASSESSMENT YEAR : 2008-09) MADE UNDER SECTION 14A R.W. RULE 8D OF THE ACT. TH E ASSESSEE FILED A DETAILED REPLY VIDE A LETTER DATED 22/7/2011 EXPLAI NING THAT THE ASSESSEE HAS SUO-MOTU OFFERED RS.15,21,748/- AS EXP ENDITURE ATTRIBUTABLE TO THE EARNING OF THE EXEMPT INCOME. THE ASSESSING OFFICER DID NOT ACCEPT THE COMPUTATION OF THE ASSESSEE AND PROCEEDED BY DISALLOWING RS.1,10,72,191/- UNDER SECTION 14A R.W. RULE 8D OF THE ACT. 6.1 ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A) B UT WITHOUT ANY SUCCESS. 6.2 BEFORE US, LD. SENIOR COUNSEL VEHEMENTLY SUBMIT TED THAT THE ASSESSING OFFICER HAS NOT CONSIDERED THE DISALLOWAN CE MADE BY THE ASSESSEE AND WITHOUT RECORDING HIS SATISFACTION, TH E ASSESSING OFFICER HAS INVOKED THE PROVISIONS OF SECTION 14A R.W. RULE 8D OF THE ACT, WHICH IS NOT IN CONSONANCE WITH THE PROVISIONS OF THE ACT . STRONG RELIANCE WAS PLACED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF RELIANCE CAPITAL ASSET MANAGEMENT IN ITA NOS.8625/MUM/2010, 4459/MUM /2012 AND 4795/MUM/2012. PER CONTRA, THE LD. DR STRONGLY REL IED UPON THE FINDINGS OF THE LOWER AUTHORITIES. 6.3 WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUT HORITIES BELOW. WE HAVE ALSO GIVEN THOUGHTFUL CONSIDERATION TO THE COMPUTATION OF DISALLOWANCE MADE BY THE ASSESSEE. IT IS AN UNDISP UTED FACT THAT THE ASSESSING OFFICER HAS SIMPLY INVOKED THE PROVISIONS OF SECTION 14A R.W. RULE 8D OF THE ACT WITHOUT MAKING ANY OBSERVATION O N THE COMPUTATION OF DISALLOWANCE MADE BY THE ASSESSEE. BY DOING SO, THE ASSESSING OFFICER HAS COMPLETELY IGNORED CLAUSE (2) OF SECTIO N 14A, WHICH MANDATES THE ASSESSING OFFICER TO RECORD HIS SATISF ACTION BEFORE 5 ITA NO. 7253/MUM/2012 ITA NO.23/MUM/2013 (ASSESSMENT YEAR : 2008-09) PROCEEDING FURTHER. IN THE INSTANT CASE, WE FIND T HAT THE ASSESSING OFFICER HAS NOT RECORDED ANY SATISFACTION NOR HE HA S MADE ANY OBSERVATION ON THE COMPUTATION OF DISALLOWANCE MADE BY THE ASSESSEE AND THE DISALLOWANCE IS CONFIRMED BY THE CIT(A). WE ACCORDINGLY SET ASIDE THE FINDING OF THE CIT(A) AND DIRECT THE ASSE SSING OFFICER TO DELETE THE IMPUGNED ADDITION. GROUND NO.3 IS ACCORDINGLY ALLOWED. 7. GROUND NO.4 RELATES TO THE DETERMINATION OF ARM S LENGTH PRICE WITH RESPECT TO GUARANTEE COMMISSION OF 0.20% RECEI VED BY THE ASSESSEE FROM ITS ASSOCIATED ENTERPRISE. AS MENTIO NED ELSEWHERE, AN IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL IN A SSESSEES OWN CASE IN ASSESSMENT YEAR 2007-08 IN ITA NOS.2126/MUM/2012 AN D 2178/MUM/2012. WE FIND THAT SIMILAR ISSUE WAS CONSI DERED BY THE TRIBUNAL AT PARA-7 OF ITS ORDER AND AT PARA-10 THE TRIBUNAL FOLLOWED THE FINDINGS GIVEN BY THE CO-ORDINATE BENCH IN ASSESSME NT YEAR 2006-07 AND UPHELD THE DELETION OF THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF T.P ADJUSTMENT MADE IN RESPECT OF CO MMISSION/FEES FOR THE GUARANTEE GIVEN BY THE ASSESSEE TO ITS ASSOCIAT ED ENTERPRISES. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDIN ATE BENCH(SUPRA) WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION MADE ON ACCOUNT OF GUARANTEE COMMISSION. GROUNDNO.4 IS ALLOWED. 8. GROUND NO.5 RELATES TO NON-GRANTING OF DEPRECIAT ION ON ADDITION MADE ON ACCOUNT OF ADVERTISEMENT EXPENSES IN ASSESS MENT YEAR 2006- 07 AND 2007-08. 8.1 LD. SENIOR COUNSEL STATED THAT THE TRIBUNAL VID E ORDER DATED 20/12/2013 FOR ASSESSMENT YEAR 2007-08 HAS ALLOWED THE ENTIRE 6 ITA NO. 7253/MUM/2012 ITA NO.23/MUM/2013 (ASSESSMENT YEAR : 2008-09) EXPENDITURE AS A REVENUE EXPENDITURE, HENCE THE CL AIM OF DEPRECIATION BY THE ASSESSEE BECOMES OTIOSE. 8.2 WE FIND FORCE IN THE CONTENTION OF THE LD. SENI OR COUNSEL. THE TRIBUNAL HAS AT PARA-5 OF ITS ORDER IN ITA NO.2126/ MUM/2012 HAS FOLLOWED THE FINDINGS OF THE CO-ORDINATE BENCH FOR ASSESSMENT YEAR 2006-07 AND DELETED THE DISALLOWANCE MADE BY THE AS SESSING OFFICER ON ACCOUNT OF EXPENDITURE INCURRED ON TELEVISION ADVER TISEMENT. SINCE THE ENTIRE EXPENDITURE HAS BEEN ALLOWED AS REVENUE EXPE NDITURE, THE CLAIM OF DEPRECIATION BECOMES OTIOSE. GROUND NO.5 IS ACC ORDINGLY DISMISSED. 9. COMING TO THE ADDITIONAL GROUND RAISED BY THE AS SESSEE BY WHICH THE ASSESSEE HAS CLAIMED THAT ROYALTY INCOME OF RS. 3.17 LACS IS RECEIVED FROM OVERSEAS SUBSIDIARY M/S. SCIB CHEMICALS SAE, EGYPT IS NOT TAXABLE IN INDIA BY VIRTUE OF ARTICLE-13 OF INDIA AND EGY PT TREATY. 9.1 LD. SENIOR COUNSEL DREW OUR ATTENTION TO THE TR ANSFER PRICING REPORT AND POINTED OUT THAT THE ROYALTY INCOME OF R S.3.17 CRORES WAS DULY EXPLAINED IN THE TRANSFER PRICING STUDY REPORT , WHICH IS EXHIBITED AT PAGES 446 & 447 OF THE PAPER BOOK. LD. SENIOR COUN SEL FURTHER DREW OUR ATTENTION TO THE AGREEMENT ENTERED INTO BETWEE N THE ASSESSEE AND M/S. SCIB CHEMICALS SAE, EGYPT, WHICH IS EXHIBITED AT PAGES 475 TO 477 OF THE PAPER BOOK. LD. SENIOR COUNSEL FURTHER POIN TED OUT THAT THE ROYALTY INCOME OF RS.3.17 CRORES HAVE BEEN DULY EXP LAINED IN THE AUDIT REPORT. IT IS THE SAY OF THE LD. SENIOR COUNSEL T HAT ALL THE FACTS RELATING TO THE ROYALTY INCOME WERE BEFORE THE LOWER AUTHO RITIES AND ONLY THE CLAIM IS RAISED FOR THE FIRST TIME BEFORE THE TRIBU NAL, WHICH IS PURELY A LEGAL ISSUE DEPENDING UPON ARTICLE-13 OF THE INDO-E GYPT TREATY. 7 ITA NO. 7253/MUM/2012 ITA NO.23/MUM/2013 (ASSESSMENT YEAR : 2008-09) 9.2 WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE A DDITIONAL CLAIM MADE BEFORE US FOR THE FIRST TIME. WE HAVE ALSO GO NE THROUGH THE RELATED DOCUMENTS REFERRED TO HEREINABOVE. WE FIND FORCE IN THE CONTENTION OF LD. SENIOR COUNSEL. THE FACTUAL MATR IX IS VERY MUCH AVAILABLE DURING THE COURSE OF THE ASSESSMENT/APPEL LATE PROCEEDINGS. ONLY THE CLAIM OF EXEMPTION IS MADE BEFORE US. ART ICLE-13 TO THE TREATY STATES THAT ROYALTY ARISING IN CONTRACTING STATE A ND PAID TO RESIDENT OF THE OTHER CONTRACTING STATE SHALL BE TAXABLE ONLY I N THE FIRST MENTIONED STATE. ADMITTING THE ADDITIONAL GROUND OF APPEAL , WE RESTORE THIS ISSUE TO THE FILES OF THE ASSESSING OFFICER . THE ASSESS ING OFFICER IS DIRECTED TO DECIDE THE ISSUE IN THE LIGHT OF THE DTAA. THE ADD ITIONAL GROUND IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO.23/MUM/2013-REVENUES APPEAL:- 11. GROUND NO.1 RELATES TO THE DELETION OF THE ADDI TION MADE ON ACCOUNT OF ADVERTISEMENT EXPENDITURE AND THE CLAIM OF DEPRECIATION THEREON. THIS ISSUE HAS BEEN CONSIDERED AND DISCUS SED AT LENGTH IN ASSESSEES APPEAL, QUA GROUND NO.5 OF THAT APPEAL. FOR THE REASONS DISCUSSED THEREIN, REVENUES APPEAL ON THIS GROUN D IS DISMISSED. 12. GROUND NO.2 RELATES TO THE ARMS LENGTH PRICE R ELATING TO THE GUARANTEE COMMISSION RECEIVED BY THE ASSESSEE. THI S ISSUE HAS BEEN CONSIDERED AND DISCUSSED BY US IN DETAIL IN ASSESSE ES APPEAL, QUA 8 ITA NO. 7253/MUM/2012 ITA NO.23/MUM/2013 (ASSESSMENT YEAR : 2008-09) GROUND NO.4 OF THAT APPEAL. FOR DETAILED REASONS G IVEN THEREIN, REVENUES GROUND IS DISMISSED. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20/11/2015. SD/- SD/- (SAKTIJIT DEY) (N.K.BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 20/11/2015 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI VM , SR. PS