Agro Tech Foods Limited , Secunderabad v. Jt. Commissioner of Income Tax (OSD), Range-1, Hyderabad

ITA 1361/Hyd/2018 | 2014-2015
Pronouncement Date: 15-03-2021 | Result: Partly Allowed

Appeal Details

RSA Number 136122514 RSA 2018
Assessee PAN AAECA0303M
Bench Hyderabad
Appeal Number ITA 1361/Hyd/2018
Duration Of Justice 2 year(s) 8 month(s) 16 day(s)
Appellant Agro Tech Foods Limited , Secunderabad
Respondent Jt. Commissioner of Income Tax (OSD), Range-1, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 15-03-2021
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted DB-B
Tribunal Order Date 15-03-2021
Date Of Final Hearing 07-01-2021
Next Hearing Date 07-01-2021
Last Hearing Date 17-10-2019
First Hearing Date 01-11-2018
Assessment Year 2014-2015
Appeal Filed On 28-06-2018
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD (THROUGH VIDEO CONFERENCE) BEFORE SHRI S.S.GODARA JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU ACCOUNTANT MEMBER ITA NO. A.Y. APPELLANT RESPONDENT 140/HYD/15 2010 - 11 AGRO TECH FOODS LIMITED SECUNDERABAD [PAN: AAECA0303M] DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-1(1) HYDERABAD 210/HYD/16 2011 - 12 487/HYD/17 2012 - 13 2170/HYD/17 2013-14 1361/HYD/18 2014-15 JOINT COMMISSIONER OF INCOME TAX (OSD) RANGE-1 HYDERABAD FOR ASSESSEE : SHRI DANESH BAFNA AR FOR REVENUE : SHRI Y.V.S.T.SAI CIT-DR DATE OF HEARING : 07-01-2021 DATE OF PRONOUNCEMENT : 15-03-2021 O R D E R PER S.S.GODARA J.M. : THESE FIVE ASSESSEES APPEALS FOR AYS.2010-11 TO 201 4-15 ARISE AGAINST THE DCIT-I HYDERABADS ORDER(S) DATED 3 1-12- 2014 08-01-2016 12-01-2017 25-10-2017 AND 04-05- 2018 INVOLVING PROCEEDINGS U/S. 143(3) R.WS.144(C)(5) IN FORMER APPEALS AND U/S.143(3) R.W.S.144(C)(13) OF THE INCOM E TAX ACT 1961 [IN SHORT THE ACT] IN LATTER THREE CASES; RESPECTI VELY. 2. HEARD BOTH THE PARTIES THROUGH SHRI DANESH BAFNA AN D SHRI SAI LEARNED AUTHORISED REPRESENTATIVE AND LEARN ED CIT-DR; RESPECTIVELY. CASE FILES AND RECORDS STAND P ERUSED. AGRO TECH FOODS LIMITED (GROUP CASES) :- 2 -: 3. IT TRANSPIRES DURING THE COURSE OF HEARING THAT THE ASSESSEES INSTANT BATCH OF FIVE CASES RAISE MANY OF THE IDENTICAL SUBSTANTIVE GROUNDS. THESE APPEALS ARE TAKEN UP TOGETHER THEREFORE FOR THE SAKE OF CONVENIENCE AND BREV ITY. WE TREAT AY.2010-11 INVOLVING ITA NO.140/HYD/2015 AS THE LEAD ASSESSMENT YEAR CONTAINING THE FOLLOWING SUBSTANTIVE GRO UNDS: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE ASSESSMENT ORDER ('ORDER') PASSED BY THE LEARNED AS SESSING OFFICER ('LD.AO') UNDER THE DIRECTIONS OF LD. PANEL AS PER SECTION 143(3) READ WITH SECTION 144C OF THE INCOME TAX ACT 1961 ('ACT ') IS BAD IN LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD.AO ERRED IN REJECTING THE TRANSFER PRICING ('TP' ) DOCUMENTATION MAINTAINED BY THE ASSESSEE BY INVOKING PROVISIONS O F SUBSECTION 3 OF SECTION 92C OF THE ACT AND CONTENDING THAT THE INFO RMATION OR DATA USED IN THE COMPUTATION OF THE ARM'S LENGTH PRICE I S NOT RELIABLE OR CORRECT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. AO ERRED IN ARBITRARILY DETERMINING THE ARM'S L ENGTH PRICE OF ROYALTY PAID TO THE AE AS NIL INSTEAD OF RS. 9 537 451 IN RESPECT OF THE 'TRADEMARK' AVAILED BY THE APPELLANT FROM ITS A E. WHILE DOING SO THE LD. AO ERRED IN REJECTING /IGNO RING THAT: I. THE APPROACH ADOPTED BY THE APPELLANT BY AGGREGA TING THE ROYALTY PAYMENT UNDER THE MANUFACTURING ACTIVITY FOR DETERM INATION OF THE ARM'S LENGTH NATURE OF THE PAYMENT IN THE TP DOCUME NTATION; AND II. THE COMMERCIAL RATIONALE PUT FORWARD DURING THE PROCEEDINGS SHOW CASING THE NECESSITY OF THE TRADEMARK FOR THE APPEL LANT FOR UNDERTAKING THE RELEVANT BUSINESS. THE APPELLANT THEREFORE PRAYS THAT THE AFORESAID AD JUSTMENT BE DELETED. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD.AO ERRED IN DETERMINING THE ARM'S LENGTH PRICE O F THE PROFESSIONAL FEES PAID TO THE AE AS NIL INSTEAD OF RS. 21 394 87 3 WHILE DOING SO THE LD. AO ERRED IN REJECTING / IGNORING THAT: I. THE APPELLANT HAD SUPPORTED THE CLAIMS WITH APPR OPRIATE EVIDENCES DURING THE ASSESSMENT PROCEEDINGS; AND II. THERE WAS COMMERCIAL RATIONALE AND EXPEDIENCY I N AVAILING THE SERVICES FROM THE AES AGRO TECH FOODS LIMITED (GROUP CASES) :- 3 -: THE APPELLANT THEREFORE PRAYS THAT THE AFORESAID AD JUSTMENT BE DELETED. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. AO ERRED IN ARBITRARILY MAKING AN ADJUSTMENT OF RS.9 78 852 BEING 10% OF VALUE OF REIMBURSEMENT OF EXPENSES REC EIVED FROM AE. THE APPELLANT PRAYS THAT THE AFORESAID ADJUSTMENT B E DELETED. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD.PANEL ERRED IN NOT ADJUDICATING THE GROUND ON AL LOWANCE OF EXPENDITURE UNDER SECTION 35D OF THE ACT WHILE GIV ING DIRECTIONS UNDER SECTION 144C(5) OF THE ACT. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD.AO HAS ERRED IN ALLOWING 1/5 TH OF ADVERTISEMENT AND SALES PROMOTION EXPENSES OF RS. 8 66 71 253 UNDER SECTION 35D OF THE ACT INSTEAD OF ALLOWING ENTIRE EXPENDITURE UNDER SECTIO N 37(1) OF THE ACT CLAIMED BY THE APPELLANT IN THE RETURN OF INCOME. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD.AO ERRED IN LEVYING INTEREST UNDER SECTION 234A OF THE ACT. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD.AO ERRED IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT. 4. COUPLED WITH THIS THE ASSESSEE HAS ALSO MOVED ITS PETITION DT.25-09-2020 SEEKING TO RAISE ADDITIONAL 10 SUBSTANTIVE GROUND THAT THE LEARNED LOWER AUTHORITIES OU GHT TO HAVE ALLOWED EDUCATION CESS AMOUNT OF RS. 32 49 207/ - AS A DEDUCTION U/S.37(1) OF THE ACT. 5. THE REVENUE ON THE OTHER HAND HAS VEHEMENTLY OPPOSED THE ASSESSEES PETITION MOVED AT THIS BELATED S TAGE AND THAT TOO WITHOUT EXPLAINING ITS ACT AND CONDUCT IN N OT HAVING AGITATED THE VERY ISSUE BEFORE THE LOWER AUTHORI TIES. 6. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE FOREGOING RIVAL ARGUMENTS QUA ADMISSION OF THE ASSESSEES ADDITIONAL SUBSTANTIVE GROUND NO.10 THAT ITS EDUCATION CES S AMOUNT OF RS.32 49 207/- OUGHT TO HAVE BEEN TREATED AS A N ALLOWABLE DEDUCTION. HON'BLE APEX COURTS LANDMARK DE CISION IN AGRO TECH FOODS LIMITED (GROUP CASES) :- 4 -: NATIONAL THERMAL POWER CO. LTD. VS. CIT [229 ITR 38 3] (SC) AS CONSIDERED THE ALL CARGO GLOBAL LOGISTICS LTD. VS. DCIT (2012) [137 ITD 217] (SB) (MUMBAI) HOLDS THAT THIS TRIB UNAL CAN VERY WELL ENTERTAIN SUCH LEGAL GROUND SO AS TO DET ERMINE CORRECT TAX LIABILITY OF AN ASSESSEE SUBJECT TO THE COND ITION THAT ALL THE RELEVANT FACTS FORM PART OF THE RECORDS. WE MAK E IT CLEAR THAT THE DISALLOWANCE OF EDUCATION CESS HAS NOWHERE BEE N CONTESTED AT THE REVENUES BEHEST ON FACTS. WE THUS ACCEPT THE ASSESSEES FOREGOING PETITION DT.25-09-2020 SEEKING TO RASE THE IMPUGNED ADDITIONAL GROUND IN ALL THESE ASSESSMENT Y EARS. 7. WE NOW COME TO THE ISSUE-WISE ADJUDICATION OF ALL T HE ASSESSEES SUBSTANTIVE GROUNDS EXTRACTED IN THE PRECEDI NG PARAGRAPHS. ITS 1 ST TO 5 TH SUBSTANTIVE GROUNDS CHALLENGE CORRECTNESS OF BOTH THE LOWER AUTHORITIES ACTION DETERMI NING THE COST OF ROYALTY AND PROFESSIONAL CHARGES INVOLVIN G SUM(S) OF RS.95 37 451/- AND RS.2 13 94 873/-; RESPECTIVELY AS NIL THEREBY RESULTING IN THE ADJUSTMENTS IN ISSUE. ITS FUR THER CASE IN SUCCESSIVE SUBSTANTIVE GROUNDS IS THAT THE LOWER AUTH ORITIES OUGHT NOT TO HAVE DISALLOWED 10% OF REIMBURSEMENT OF EXPENSES RECEIVED FROM ITS OVERSEAS ASSOCIATED ENTERP RISE (AE) RESULTING IN ARMS LENGTH PRICE (ALP) ADJUSTMENT OF RS.9 78 852/-. MR.BAFNA STATES VERY FAIRLY AT THE BAR THAT THE ASSESSEE DOES NOT WISH TO PRESS FOR THE LAST ISSUE OF REIMBURSEMENT OF EXPENSES @10% KEEPING IN MIND SMALL NESS OF THE SUM(S) INVOLVED IN ALL THESE ASSESSMENT YEARS P ROVIDED THAT THE SAME IS NOT TAKEN AS A PRECEDENT IN LATTER ASSESS MENT YEARS. THE REVENUE IS EQUALLY FAIR IN NOT OPPOSING TH IS CONCESSION. WE THUS DECLINE THE ASSESSEES 5 TH SUBSTANTIVE GROUND(S) IN AY.2010-11 6 TH SUBSTANTIVE GROUND IN AY.2011- AGRO TECH FOODS LIMITED (GROUP CASES) :- 5 -: 12 AND 4 TH SUBSTANTIVE GROUND IN AY.2012-13 TO 2014-15 AS PER THE ASSESSEES FOREGOING STAND. 8. WE NOW CONTINUE TO PROCEED WITH THE ASSESSEES CHALLENGE MADE TO TRANSFER PRICING ADJUSTMENTS OF ROYAL TY AND PROFESSIONAL SERVICES (SUPRA). THERE IS HARDLY ANY DISPUTE BETWEEN THE PARTIES THAT THE TRANSFER PRICING OFFICERS (TPO) DETAILED DISCUSSION IN ITS SECTION 92CA(3) DT.28-08-20 13 APPLIES BENEFIT TEST AS UNDER: 8.3 INTANGIBLE TRANSACTIONS: DURING THE YEAR THE TAXPAYER HAS MADE PAYMENT ON A CCOUNT OF ROYALTY AND PROFESSIONAL SERVICES. BOTH ARE INTANGI BLE TRANSACTIONS AND BEING SEPARATE CLASS OF TRANSACTIONS NEEDS TO B E ANALYSED SEPARATELY. THE HON'BLE ITAT MUMBAI IN UCB INDIA PVT. LTD (317 ITR 292 (AT) MUMBAI) AND MANY OTHER HELD THAT EACH CLA SS OF TRANSACTION HAS TO BE ANALYZED SEPARATELY. 8.3.1 PAYMENT OF ROYALTY: DURING THE YEAR A SUM OF RS.95 37 451/- HAS BEEN PA ID AS ROYALTY. IN THIS REGARD THE TAXPAYER IN ITS TP DOCUMENT STATED THAT IT PAYS ROYALTY FOR LICENSE TO USE THE 'ACT II' TRADEMARK F OR SALE OF POPCORN IN THE INDIAN MARKET. THIS TRANSACTION WAS COMBINED WI TH PURCHASE OF RAW MATERIALS SINCE THE ROYALTY PAYMENT PERTAINS T O LICENSE TO SELL POPCORN. OTHER THAN THIS NO FURTHER INFORMATION OR JUSTIFICATION WAS PROVIDED. THEREFORE THE TAXPAYER WAS REQUESTED TO P ROVIDE AND SATISFY THE BENEFIT TEST VIDE THIS OFFICE LETTER DA TED 08-07-2013. IN ITS REPLY FILED ON 19-08-2013 HE TAXPAYER STATED THAT THE COMPANY IS IN THE BUSINESS OF EDIBLE OILS AND FOODS. IN ORDER TO HAVE A WIDE AND RECOGNIZABLE PRESENCE IN THE FOODS MARKET THE COMP ANY ENTERED THE POP CORN MARKET AND FOR THIS PURPOSE COMPANY ENTERE D INTO AN AGREEMENT WITH CONAGRA INC. SELLING POP CORN UNDER THE BRAND NAME 'ACT II'. THE TANGIBLE BENEFIT THAT THE COMPANY DER IVED IS THAT IT HAS BEEN ABLE TO ADD APPROXIMATELY RS.61 CRORES TO ITS TURNOVER. THE TAXPAYER HAS ALSO COMPARED THE PAYMENT OF ROYALTY W ITH A REPORT FROM BUSINESS STANDARD. AS PER THE REPORT DURING FY 10 THE ROYALTY PAID BY SOME OF THE TOP BRANDS RANGED FROM 0.15 TO 4.44 OF THE NET SALES. THE LOWEST OF 0.19% IS THAT OF THE TAXPAYER ITSELF. THE CONTENTION OF THE TAXPAYER HAS BEEN CONSIDERED. AS PER THE AGREEMENT BETWEEN CONAGRA FOODS LNC. AND AGRO TECH FOODS LTD. DATED 01-04-2008 THE LICENSOR HAS MINORITY OWNERSH IP INTEREST IN AGRO TECH FOODS LIMITED (GROUP CASES) :- 6 -: LICENSEE WITH ABOUT 48.1% OF VOTING SHARES. THE LIC ENSOR HAS GRANTED AN EXCLUSIVE RIGHT AND LICENSE TO USE OF 'ACT II LO GO' SOLELY IN CONNECTION WITH THE MANUFACTURE MARKETING SALE AN D DISTRIBUTION OF THE ACT' SACHETS ACT II VENDING POPCORN AND ACT' M ICROWAVE POPCORN IN INDIA NEPAL SRI LANKA BANGLADESH AND BHUTAN. THE ROYALTY IS CALCULATED IN THE FOLLOWING MANNER- ACT II SACHET: 1% OF NET SALES PRODUCTS SOLD IN IND IA AND 2% OF NET SALES OF PRODUCTS SOLD OUTSIDE INDIA. ACT II VENDING POPCORN: 1% OF NET SALES PRODUCTS SO LD IN INDIA AND 2% OF NET SALES OF PRODUCTS SOLD OUTSIDE INDIA. ACT II MICROWAVE POPCORN: 5% OF NET SALES PRODUCTS SOLD IN INDIA AND 8% OF NET SALES OF PRODUCTS SOLD OUTSIDE INDIA. THE ROYALTY IS THE CALCULATED @ 1% / 2% / 5% AS THE CASE MAY BE. THE NEWS ITEM RELIED UPON BY THE TAXPAYER IS MISLEA DING IN THE SENSE THAT ROYALTY IS SHOWN AS A PERCENTAGE OF NET SALES. IN THE PRESENT CASE THE SALE OF POPCORN CONSTITUTES ABOUT 10% OR S O OF THE TOTAL SALES AND COMPUTING ROYALTY ON TOTAL SALES WHICH COMPRIS ES OF ENTIRELY DIFFERENT PRODUCTS IS NOT TRUE TO THE FACTS. THE TA XPAYER WAS FURTHER SHOW CAUSED TO SATISFY THE FOLLOWING CONDITIONS ALO NGWITH SUPPORTING DOCUMENTS- A. THE BENEFITS DERIVED BY PAYING ROYALTY. B. WHETHER THE PAYMENT MADE IS COMMENSURATE WITH TH E BENEFITS RECEIVED. C. WHETHER AS A RESULT OF SUCH PAYMENT RESULTED IN ANY ECONOMIC OR COMMERCIAL VALUE TO ENHANCE THE COMMERCIAL POSITION . THE EXPECTED BENEFIT MUST BE SUFFICIENTLY DIRECT AND SUBSTANTIAL SO THAT AN INDEPENDENT RECIPIENT IN SIMILAR CIRCUMSTANCES WO ULD BE PREPARED TO PAY FOR IT. D. THE LICENSOR IS A MINORITY SHAREHOLDER INDIRECTL Y HOLDING 48.11% SHARES WHEREAS YOUR COMPANY IS A RELATIVELY OLD CO MPANY ALREADY OWING SUBSTANTIAL BRAND BY THE NAME SUNDROP AND RAT H. THEREFORE THE LICENSOR HAS IN A WAY HAS UTILIZED YOUR PRESENC E IN THE MARKET TO PROMOTE ITS OWN BRAND. IN RESPONSE TO THE ABOVE SHOW CAUSE NOTICE THE TAX PAYER FILED A DETAILED REPLY ON 19-08-2013. IT IS MERELY STATED T HAT BY PAYING ROYALTY THE SALES HAVE INCREASED TO ABOUT 60 CRORES . THIS IS NOT BORNE OUT OF THE FACTS. THE TAXPAYER WAS INCORPORATED IN 1986 AS ITC AGRO TECH. IT WAS LATER TAKEN OVER BY CAG TECH (MAURITIU S) LIMITED IN THE YEAR 1997. AGRO TECH FOODS LTD. (ATFL) IS SEGMENTE D UNDER THE FOLLOWING CATEGORIES: BRANDED OILS AND FOODS - LED BY THE FLAGSHIP BRAND SUNDROP ATFL HAS EXPANDED ITS BRAND PORTFOLIO THROUGH ACQUISITIO N OF THE RATH AGRO TECH FOODS LIMITED (GROUP CASES) :- 7 -: VANASPATI BRAND FROM SIEL LTD. IT ALSO SELLS UNREFI NED MUSTARD OIL UNDER THE SUDHAM BARND. HEALTH WORLD DRIED GREEN PEAS BRINGS TO THE CONSUME R HEALTHY FRESH GREEN PEAS. SNACK PACK IS THE ONLY SHELF STABLE PUD DING IN THE COUNTRY; SWISS MISS IS THE ONLY HOT COCOA MIX AVAIL ABLE TO INDIAN CONSUMERS. SOURCING AND INSTITUTIONAL BUSINESS - THE SOURCING AND INSTITUTIONAL BUSINESS (SIB) DIVISION IN ATFL STARTED OFF AS A CO MMODITY TRADING TEAM FOR THE MAIN PURPOSE OF SOURCING EDIBLE OILS F OR THE BRAND EDIBLE OILS GROUPS. ITS PROFILE KEPT WIDENING WITH SOURCIN G OF OTHER AGRI COMMODITIES LIKE RICE WHEAT SOYA DOC & MUSTARD CO VERING BOTH TRADING & EXPORT. FOOD SERVICES - THE FOOD SERVICE BUSINESS OF THE TA XPAYER IN INDIA SUPPLYING FOOD PRODUCTS SUCH AS LAMB WESTON OILS POPCORN TO THE HOTELS RESTAURANTS AND CATERING ESTABLISHMENTS. TH E FOOD SERVICE BUSINESS ALSO DEALS IN LARGE PACKS OF SUNDROP OILS CRISTAL BRAND OF OIL ACT ' POPCORN TOMATO PRODUCTS AND OTHERS SNAC K ITEMS. THUS THE TAXPAYER IS HAVING PRESENCE IN INDIAN MAR KETS SINCE 1986 AND HAS OVER THE YEARS DEVELOPED A ROBUST MARKETING AND DISTRIBUTION NETWORKS. THE MAIN ACTIVITY OF THE TAX PAYER IS FROM OTHER BRANDED ITEM IN OILS. THE SALE OF POPCORN FORMS PAR T OF FOOD SERVICES WHICH IS COVERED IN THE MAIN SEGMENT AS THAT OF BRA NDED FOODS. THE TOTAL TURNOVER OF THE TAXPAYER IN F.Y. 2009-10 IS R S.649.571 CRS (I.Y. RS.773.61 CRS) WHEREAS THE SALE OF ACT II POPCORN AS PER ANNEXURE- J OF THE TP DOCUMENT IS RS.68.68 CRS (I.Y. RS.43.90 CRS). THUS THE TOTAL SALE OF POPCORN CONSTITUTES ONLY ABOUT 10.57% OF THE TOTAL SALES. THE EXPENDITURE OF MARKETING AND DISTRIBUTION ACTIV ITY IS RS.70.93 CRS (I.Y. RS.61.18 CRS) WHICH IS ABOUT 11% OF THE TOT AL SALES AND WHICH IN TURN IS EXPLOITED FOR THE SALE OF POPCORNS ALSO. PRIOR TO THE INTRODUCTION OF ACT II POPCORN THE BR AND WAS RARELY KNOWN IN THE INDIAN MARKETS. FURTHER AS PER THE FU NCTIONS PERFORMED BY THE TAXPAYER THE POPCORN SO IMPORTED ARE ADDED WITH THE REQUIRED FLAVOR TO SUIT THE TASTE OF THE INDIAN CUSTOMER. TH E PACKAGING REQUIREMENTS ARE ALSO MADE TO ENSURE ADHERENCE TO A PPLICABLE INDIAN STATUTORY REGULATIONS. THE TAXPAYER ALSO IMPORTS CO RN IN BULK WHICH IS THEN SEASONED PACKAGED IN SMALL PACKS AND SOLD AS INSTANT POPCORN. THEREFORE THE TAXPAYER IS CARRYING OUT A VALUE ADD ITION TO THE BRAND OWNED BY THE AE. THE TAXPAYER IS THUS PROMOTING THE BRAND THROUGH ITS OWN EFFORTS. IT IS NOT THE CASE WHERE THE BRAND WAS ALREADY PRESENT AND THE TAXPAYER HAS ONLY ACQUIRED THE BRAN D. IT IS THE EFFORT ON THE PART OF THE TAXPAYER TO PROMOTE THE BRAND AN D FOR WHICH THE TAXPAYER OUGHT TO BE COMPENSATED RATHER IT PAYING THE ROYALTY. AGRO TECH FOODS LIMITED (GROUP CASES) :- 8 -: FURTHER AS PER THE PUBLISHED ANNUAL REPORT THE TA XPAYER IS CARRYING OUT SUBSTANTIAL R&D TO INCREASE THE PENETRATION OF POPCORN. THE RELEVANT EXTRACT OF THE ANNUAL REPORT IS AS UNDER: AGRO TECH FOODS LIMITED FORM B RESEARCH AND DEVELOPMENT (R&D) 1.SPECIFIC AREAS IN WHICH R&D CARRIED OUT BY THE COMPANY -DEVELOPMENT OF SCIENTIFIC BENDS IN THE OILS CATEGORY -DEVELOPMENT OF TOMATO CHIL FLAVOR FOR INSTANT POPCORN OR LOCAL MANUFACTURE OF SWEET N SALT POPCORN (KETTLE CORN) FOR MICROWAVE POPCORN. -DEVELOPMENT OF LOW CASH RING SKLS FOR INSTANT POPCORN 2.BENEFITS DERIVED AS A RESULT OF THE ABOVE R&C -ACQUISITION OF NEW CONSUMERS FOR SUNDROP WITH THE LAUNCH OF SUNDROP GELCILLE & FRESHITE IN THE OILS CATEGORY. -INCREASE PENETRATION OF POPCORN 3.FUTURE PLAN OF ACTION -NEW FLAVORS FOR INSTANT. MICROWAVE POPCORN & VENDING CORN. -LOCAL PRODUCTION/PACKAGING OF CURRENTLY IMPORTED FOOD ITEMS. 4.EXPENDITURE ON R&D A) CAPITAL B) RECURRING C) TOTAL D) TOTAL R&D EXPENDITURE AS PERCENTAGE OF TURNOVER RS.MILLIONS 0.91 22.04 22.95 0.35% IN SUBSEQUENT PARA OF THE ANNUAL REPORT THE COMPAN Y HAS REPORTED ITS STRATEGY AS REGARDS THE POPCORN AS UNDER: 7.1.3. IN THE SNACKS CATEGORY YOUR COMPANY CONTINUE D ITS FOCUS ON ACT II POPCORN THROUGH SUSTAINED NATIONAL MEDIA PRESENCE FOR THE BRAND SIGNIFICANT INCREASE IN RETAIL DISTRIBUTION AND INC REASING AWARENESS OF THE CATEGORY. IN VIEW OF THE ABOVE DISCUSSION IT IS CLEAR THAT I T IS THE WHICH HAS BENEFITED FROM THE PRESENCE OF THE TAXPAYER IN INDI AN MARKET SINCE LONG AND WHICH HAS ALREADY DEVELOPED A BRAND NAME I TSELF. THE AE HAS USED THE ROBUST MARKETING AND DISTRIBUTION CHAN NEL ALREADY AVAILABLE WITH THE TAXPAYER. THE AE IS ALSO ENJOYIN G THE BENEFITS OF THE R&D ON POPCORN BY THE TAXPAYER. WHAT AE SELLS I S BLAND POPCORNS AND IT IS WHAT THE TAXPAYER DOES IS TO MAK E IT SUITABLE FOR AGRO TECH FOODS LIMITED (GROUP CASES) :- 9 -: THE INDIAN TASTES. THUS THIS IS THE RIGHT CASE WHE RE THE TAXPAYER'S CONTRIBUTION TO LICENSE WHICH BENEFITS IT VALUE OR BRAND VALUE OF THE AE NEEDS TO BE RECOGNIZED AND SHOULD BE TAKEN INTO ACCOUNT WHILE DETERMINING ARM'S LENGTH PRICE OF ROYALTY. ONE METH OD COULD BE THAT AE MAKES PAYMENT TO LICENSEE FOR SUCH CONTRIBUTION OTHER METHOD COULD BE TO REDUCE THE ROYALTY PAYMENT APPROPRIATEL Y. SINCE THE FACT THAT ACT II POPCORN HAS A BRAND NAME ITSELF IN US A ND EUROPEAN MARKETS THEREFORE IT WOULD BE APPROPRIATE TO COMP ENSATE THE TAXPAYER FOR THE EFFORT IT MAKES TO PROMOTE THE BRA ND IN ASIAN MARKET. AS THE EXACT AMOUNT OF CONTRIBUTION MADE BY THE TAX PAYER IS NOT READILY AVAILABLE FROM THE ANNUAL REPORT THE ARM'S LENGTH PRICE OF THE ROYALTY IS HELD TO BE NIL SO AS TO OFFSET THE COMPE NSATION RECEIVABLE BY THE TAXYER. IT MAY ALSO BE MENTIONED HERE THAT ANOTHER COMPANY BY THE NAME OF BAJORIA FOODS PVT.LTD. WHICH IS SELLING POPCORNS O F AMERICAN BRAND IS NOT PAYING ANY ROYALTY. SIMILARLY MCCAIN FOODS INDI A PVT. LTD. WHICH IS SE LING FRENCH FRIES AND POTATOES SPECIALTIES AR E ALSO NOT PAYING ANY ROYALTY. ARM'S LENGTH PRICE OF ROYALTY RS.NIL PRICE PAID RS.95 37 451/- ADJUSTMENT (DOWNWARD) RS.95 37 451/_ THUS THE ARM'S LENGTH PRICE OF THE PAYMENT OF ROYAL TY RS.NIL AND THE EXCESS PAYMENT OF RS.95 37 451/- IS TREATED AS ADJU STMENT U/S. 92CA OF I.T. ACT AND THE TOTAL INCOME OF THE TAXPAY ER WILL BE ENHANCED ACCORDINGLY U/S 92CA(3) OF THE I.T. ACT. 8.3.2 PROFESSIONAL CHARGES PAID: DURING THE YEAR A SUM OF RS 2 13 94 873/- HAS BEEN PAID AS FEES FOR TECHNICAL SERVICES. IN THE TP DOCUMENT IT IS STATED THAT CONSULTANCY SERVICES FEES HAS BEEN PAID TO CONAGRA FOODS INC. FOR SHARING THE IP REGARDING THE PRODUCTION OF PEANUT BUTTER PRODUCTS GRANUALA BARS SNACK BAR PRODUCTS AND HOT COCA PRODUCTS. THE TAXPA YER HAS ALSO TAKEN ASSISTANCE IN DEVELOPING IMPLEMENTATION PLANS OF MANUFACTURING THE ABOVE PRODUCTS AS ALSO HAS ACCESS ED THE DEVELOPMENT LABORATORIES OF CONAGRA FOODS INC. THE TAXPAYER ALSO PAID THE AE FOR CONDUCTING THE FOOD SAFETY GAP ASSE SSMENT AND AUDIT OF THE PROSPECTIVE PEANUT BUTTER COPACKER. IN THIS REGARD THE TAXPAYER WAS SHOW CAUSED TO SAT ISFY THE FOLLOWING CONDITIONS ALONGWITH SUPPORTING DOCUMENTS- A. THE BENEFITS DERIVED FROM THE RECEIPT OF SERVICE S. B. WHETHER THE PAYMENT MADE IS COMMENSURATE WITH TH E BENEFITS RECEIVED. AGRO TECH FOODS LIMITED (GROUP CASES) :- 10 -: C. WHETHER AS A RESULT OF SUCH PAYMENT THE RECIPIE NT OF THE SERVICES THE TAXPAYER RESULTED IN ANY ECONOMIC OR COMMERCIA L VALUE TO ENHANCE ITS COMMERCIAL POSITION. THE EXPECTED BENEF IT MUST BE SUFFICIENTLY DIRECT AND SUBSTANTIAL SO THAT AN INDE PENDENT RECIPIENT IN SIMILAR CIRCUMSTANCES WOULD BE PREPARED TO PAY FOR IT. IF NO BENEFIT HAS BEEN PROVIDED (OR WAS EXPECTED TO BE PROVIDED) THE SERVICE CANNOT BE CHARGED FOR. D. WHETHER THE SERVICES ARE ACTUALLY RENDERED. IF Y ES PLEASE QUANTIFY SUCH SERVICES IN TERMS OF ACTUAL EXPENDITURE INCURR ED AND COMMENSURATE BENEFITS DERIVED THERE FROM. E. THE DETERMINATION OF AN ARM'S LENGTH CHARGE MUST TAKE INTO CONSIDERATION THE AMOUNT THAT AN ARM'S LENGTH ENTIT Y IS PREPARED TO PAY FOR SUCH A SERVICE IN COMPARABLE CIRCUMSTANCES. F. THE TAXPAYER'S LEVEL OF DOCUMENTATION AND EVIDEN CE TO SHOW THAT THE SERVICES ARE ACTUALLY RENDERED BY THE AES TO TH E TAXPAYER. IF THE SERVICES ARE ACTUALLY RENDERED THE LEVEL OF DOCUME NTATION AND ALSO EVIDENCE TO SHOW THAT A TANGIBLE AND DIRECT BENEFIT IS DERIVED BY THE TAXPAYER IN PAYING THE ABOVE AMOUNTS TO THE AES. G. THE ALLOCATION KEY BASED ON WHICH YOUR AE HAS CH ARGED THE AMOUNT TO YOU. AS ALSO WHETHER THE AE HAS PROVIDED THE SAME SERVICES TO ALL OTHER GROUP CONCERNS. IN RESPONSE TO THE ABOVE SHOW CAUSE NOTICE THE TAX PAYER FILED A DETAILED REPLY ON 19.08.2013. IT IS STATED THEREIN THAT THE COMPANY PAID AN AMOUNT OF INR 2 13 94 873/- TOWARDS PROFESS IONAL FEE FOR AUDIT AND CONSULTANCY RELATED TO FOOD PRODUCTS AND PLANTS. ON COMPLETION OF THE ASSIGNMENT AN AUDIT REPORT WAS I SSUED TO THE COMPANY. THIS WAS A DETAILED DOCUMENT WHEREIN A COM PREHENSIVE REPORT WAS FURNISHED REGARDING AUDIT OF A PARTICULA R FOODS PLANT. IT ALSO CONTAINED A RECOMMENDATION ON WHETHER THE COMP ANY SHOULD ASSOCIATE ITSELF WITH THE PLANT. THIS REPORT CLEARL Y TELLS US THAT THE SERVICES WERE RENDERED AND ACTUALLY UTILIZED. HENCE THE TAXPAYER HELD THAT IT WAS JUSTIFIED IN MAKING SUCH PAYMENT. THE CONTENTION OF THE TAXPAYER HAS BEEN CONSIDERED. AS PER THE MASTER CONSULTANCY AGREEMENT BETWEEN CONAGRA FOODS INC. AND THE TAXPAYER DATED 01.04.2009 THE AE WAS RETAINED AS TH E CONSULTANT TO PROVIDE CONSULTANCY SERVICES ON SHARING THE IP REGA RDING THE PRODUCTION OF PEANUT BUTTER PRODUCTS AND GRANUALA B ARS AND SNACK BAR PRODUCTS. IT WAS ALSO TO ASSIST IN DEVELOPING P OTENTIAL IMPLEMENTATION PLANTS OF MANUFACTURING THE ABOVE PR ODUCTS IN INDIA AS ALSO TO PROVIDE ACCESS TO VARIOUS DEVELOPMENT LA BORATORIES TO MAKE MINOR CHANGES IN THE PRODUCTS TO SUIT TASTES OF TAR GET CUSTOMERS AND / OR TO MEET THE REGULATORY REQUIREMENTS OF THE COUNT RY OF SALE AND / OR SUITABLE CHANGES IN PACKAGING. THE AGREEMENT IS TO EXPIRE ON 31.03.2010 AND THE FEE TO BE PAID IS USD 2 LACS. ON GOING THROUGH AGRO TECH FOODS LIMITED (GROUP CASES) :- 11 -: THE REPORT SUBMITTED BY THE AE IT IS SEEN THAT THE REPORT PERTAINS TO THE FEASIBILITY OF THE TAXPAYER BEING ASSOCIATED WI TH RUPEREL MANUFACTURING PLANT AT MAHUVA. HOWEVER AS PER THE S OW CONTAINED THE AGREEMENT THE PAYMENT IS TO BE MADE TOWARDS SH ARING OF IP OR THE ACTUAL PRODUCTION / DEVELOPMENT OF THE PRODUCT AND NOT TOWARDS ANY FEASIBILITY REPORT. FURTHER THE SALES OF THE GRANULAR PEANUT BUTTER ETC . DURING THE YEAR WAS RS. 4 88 00 270 (I.Y.3 86 63 197) AND THE FEE P AID IS RS. 2 13 94 873 WHICH IS ABOUT 43% OF THE SALES WHICH I S NOT COMMENSURATE WITH THE BENEFITS REAPED. THUS THE TAX PAYER FAILS THE BENEFIT TEST WHICH IT WAS SHOW CAUSED TO ESTABLISH. IN A NUT SHELL THE CONDITIONS AS PER THE SOW WERE NOT FULFILLED BUT S TILL THE PAYMENT WAS MADE; THERE ARE NO BENEFITS WHICH HAVE BEEN DER IVED; PAYMENT IS NOT ESTABLISHED TO BE COMMENSURATE WITH THE BENE FIT RECEIVED; THERE IS NO ECONOMICAL/COMMERCIAL ENHANCEMENT; AND NO IND EPENDENT PERSON WOULD BE WILLING TO PAY THIS AMOUNT WITHOUT ANY BENEFIT. THUS THE ARM'S LENGTH PRICE OF PROFESSIONAL CHARGES PAID IS HELD TO BE NIL. ARM'S LENGTH PRICE OF PROFESSIONAL CHARGES RS.NIL PRICE PAID RS.2 13 94 873/- ADJUSTMENT (DOWNWARD) RS.2 13 94 873/- THUS THE ARM'S LENGTH PRICE OF THE PAYMENT OF PROFE SSIONAL CHARGES IS RS.NIL AND THE EXCESS PAYMENT OF RS.2 13 94 873/- I S TREATED AS ADJUSTMENT U/S. 92CA OF IT. ACT AND THE TOTAL INCOM E OF THE TAXPAYER WILL BE ENHANCED ACCORDINGLY U/S 92CA(3) OF THE I.T . ACT. SUFFICE TO SAY THESE ADJUSTMENTS ON THE TWIN COUNTS OF R OYALTY AS WELL AS PROFESSIONAL SERVICES STAND UPHELD UPTO TH E DISPUTE RESOLUTION PANELS (DRP) DIRECTIONS FINALLY CULMINA TING IN THE IMPUGNED ADDITION. 9. BOTH PARTIES REITERATE THEIR RESPECTIVE VEHEMENT STAND S AGAINST AND IN SUPPORT OF THE TWIN ALP ADJUSTMENTS. I T IS VERY MUCH APPARENT FROM THE TPOS DETAILED DISCUSSION IN THE PRECEDING PARAS THAT HE HAS APPLIED BENEFIT TEST TO HOL D THAT IT IS NOT THE ASSESSEE HAVING VERY MUCH A ROBUST MARKET PRESENCE BUT ITS OVERSEAS AE(S) WHO ACTUALLY STOOD GAIN ED AND THEREFORE COST OF THE TWIN HEADS OF ROYALTY AS WELL A S TECHNICAL AGRO TECH FOODS LIMITED (GROUP CASES) :- 12 -: SERVICES DESERVE TO BE TAKEN AS NIL ONLY. THE FIRST AN D FOREMOST QUESTION THAT ARISES FOR OUR APT ADJUDICATION IN THIS F ACTUAL BACKDROP IS THAT IS AS TO WHETHER SUCH A BENEFIT TEST CO ULD BE VALIDLY INVOKED IN SECTION 92CA REFERENCE OR NOT? C ASE LAW CIT VS. CUSHMAN AND WAKEFIELD (INDIA) PVT. LTD. [269 CTR 16] (DEL) AND CIT VS. EKL APPLIANCES LTD. (2012) [345 I TR 241](DEL) HOLD THAT THE TPOS JURISDICTION IS TO ANALYSE THE ASSESSEES INTERNATIONAL TRANSACTIONS VIZ-A-VIZ ALP TH EREOF IN THE STATUTORY REFERENCE MADE BY THE ASSESSING OFFICER TH AN TO ASCERTAIN OR APPLY THE ACTUAL BENEFIT STAND ON THE G AINS DERIVED THERE FROM. THEIR LORDSHIPS ARE OF THE OPINI ON THAT IN BOTH THESE CONTEXTS THAT THE SO CALLED BENEFIT TEST NEED S TO BE SATISFIED FROM THE VIEW POINT OF THE ASSESSEE AND COMMO N BUSINESS PRUDENCE RATHER THAN THE TPO QUESTIONING THE TAXPAYERS WISDOM. 10. WE FURTHER NOTICE THAT APART FROM PRINCIPLE IMPOSING HIS OWN OPINION ON ASSESSEES TWIN ROYALTY AND TECHNICAL SERVICES PAYMENTS THE TPO HAD ADOPTED TWO COMPARABLES I.E. M/S.BAJORIA FOODS PVT. LTD. AND MCCAIN FOODS INDIA P VT. LTD. WHICH NOWHERE INDICATE THE FACT THAT THE ASSESSMENT YEAR( S) THEREIN INVOLVED FIRST YEAR OF INTRODUCTION OF THE CORRE SPONDING PRODUCTS IN INDIA. THE TPO THEREFORE ALSO APPEARS TO HAVE NOT GIVEN ANY DUE CONSIDERATION TO THE CLINCHING FACTS IN THE ASSESSEES ARMS LENGTH DETERMINATION IN THESE FACTS A ND CIRCUMSTANCES. 11. THE FACTUAL POSITION IS NO DIFFERENT QUA THE LATTER ASPECT OF ASSESSEES PAYMENT OF TECHNICAL SERVICES OF RS.2 1 3 94 873/- AS WELL. THE ASSESSEES AGREEMENT TO THIS EFFECT (PAP ER BOOK AGRO TECH FOODS LIMITED (GROUP CASES) :- 13 -: PG.629 TO 642 IN AY.2010-11) SUGGESTS THAT IT HAD AGREE D TO PAY FOR THE IMPUGNED CHARGES IN LIES OF CONSULTANCY S ERVICES INVOLVING ALL QUALITY CONTROL ACCESS TO OVERSEAS FACI LITIES REGARDING PEANUT BUTTER PRODUCTS GRANUALA BARS SNACK BAR AND OTHER PRODUCTS. 12. MR.SAI FURTHER FAILED TO DISPUTE THAT THE ASSESSING OFFICER HAS NOWHERE APPLIED EVEN A SINGLE COMPARABLE IN HIS DISCUSSION SO AS TO COME TO IN THE IMPUGNED NIL COST OF THE ASSESSEES PROFESSIONAL/TECHNICAL SERVICES AVAILED. WE THUS ACCEPT THE ASSESSEES THIRD AND FOURTH SUBSTANTIVE GROUN DS IN THIS LEAD AY.2010-11 TO DELETE THE IMPUGNED ROYALTY AN D TECHNICAL SERVICES PAYMENTS ADJUSTMENTS OF RS.95 37 4 51/- AND RS.2 13 94 873/-; RESPECTIVELY. SAME ORDER TO F OLLOW IN ASSESSEES GROUND NOS. 1 TO 5 FOR AY.2011-12. GROU ND NOS.1 AND 3 IN AYS.2012-13 2013-14 AND 2014-15 INVOLVING VARYING SUMS QUA THESE TWIN HEADS ADJUSTMENTS; RESPECTIVELY ARE ACCEPTED IN ASSESSEES FAVOUR IN FOREGOING TERMS SIN CE NOT INVOLVING ANY DISTINCTION ON FACTS. 13. WE STAY BACK IN AY.2010-11. THE ASSESSEES SIXTH AND 7 TH SUBSTANTIVE GROUNDS SEEK TO REVERSE THE LOWER AUTHORITIE S ACTION DISALLOWING ITS ADVERTISEMENT AND SALES PROMOTION EXPENDITURE OF RS.8 66 71 253/- U/S.37(1) OF THE ACT FOR THE SOLE REASON THAT THE SAME NEED TO BE AMORTIZED U/S.35D OF THE ACT. THE REVENUES STAND HEREIN SUPPORTS THE IMPUGNED DISALLOWANCE THAT ALL THESE EXPENSES HAVE BEEN CORRE CTLY AMORTIZED U/S.35D OF THE ACT BEING CAPITAL IN NATURE TH EREBY ENABLING THE TAXPAYER TO DERIVE BUSINESS ADVANTAGE(S) IN SALES AND MARKETING FOR THE SPECIFIED NUMBER OF YEARS. WE F IND NO AGRO TECH FOODS LIMITED (GROUP CASES) :- 14 -: REASON TO AGREE WITH THE REVENUES FOREGOING STAND. WE MAKE IT CLEAR THAT LEARNER LOWER AUTHORITIES THEMSELVES HAVE B EEN FAIR ENOUGH IN NOT REBUTTING THE IMPUGNED EXPENDITURE CLAIM ON FACTS SINCE THEY HAVE MERELY DIRECTED THE ASSESSEE TO AM ORTISE ITS ADVERTISEMENT AND SALES PROMOTION EXPENSES U/S.35D OF THE ACT. THIS STATUTORY PROVISION COMES INTO PLAY IN CAS E AN ASSESSEES EXPENDITURE CLAIM IS IN CONNECTION WITH A N EW OR EXTENSION OF THE UNDERTAKING OR IN SETTING UP A NEW UNIT WHICH IS NOT THE FACT HEREIN THE ASSESSEE HAS NOT OPTED FOR ANY EXTENSION SET UP A NEW UNIT AS IT IS SOUGHT TO BE CANVASS ED IN THE LOWER AUTHORITIES RESPECTIVE ORDERS. WE QUOTE HON' BLE APEX COURTS LANDMARK DECISION TAPARIA TOOLS LTD. VS. JCI T (2015) [372 ITR 605](SC) IN THESE FACTS AND CIRCUMSTANCES THA T A REVENUE EXPENDITURE CLAIM OUGHT NOT TO BE DISALLOWED MERELY THE SAME COULD ALSO BE AMORTIZED AS PER REVENUES STAN D. WE THUS ACCEPT THE ASSESSEES BUSINESS EXPENDITURE CLAIM IN OTHER WORDS. THE IMPUGNED DISALLOWANCE OF RS.8 66 71 253/ - IS DIRECTED TO BE DELETED. SAME ORDER TO FOLLOW IN ASSE SSEES 5 TH 6 TH AND 7 TH SUBSTANTIVE GROUNDS RAISED IN AY.2011-12 AFTER NOTICING THE CLINCHING FACT THAT THE LOWER AUTHORITIES HA VE THEMSELVES NOT DISALLOWED IDENTICAL HEAD OF EXPENSES IN LATTER TWO ASSESSMENT YEARS I.E. AYS.2013-14 & 2014-15. 14. THE ASSESSEES 8 TH SUBSTANTIVE GROUND IN AY.2010-11 SEEKS TO DELETE SECTION 234A IMPUGNED INTEREST OF RS.3 76 852/-. SUFFICE TO SAY WE NOTICE THAT THE ASS ESSEE HAD FILED ITS RETURN OF INCOME ON 08-10-2010 IN VIEW OF THE CBDTS PRESS RELEASE DT.28-09-2010 EXTENDING TIME LIMIT U/S.13 9(1) OF THE ACT FOLLOWED BY THE TAXPAYERS REGULAR RETURN UPTO 15 -10- 2010. THIS CLINCHING FACT HAS GONE UN-REBUTTED FROM THE AGRO TECH FOODS LIMITED (GROUP CASES) :- 15 -: DEPARTMENTAL SIDE. WE DIRECT THE ASSESSING OFFICER TO DE LETE THE IMPUGNED INTEREST AMOUNT. NEXT ISSUE OF SECTION 234B IN TEREST OF RS.1 96 18 732/- RAISED IN ASSESSEES 9 TH SUBSTANTIVE GROUND IS TREATED AS CONSEQUENTIAL IN NATURE. SAME ORDER TO FOLLOW IN ASSESSEES 11 TH SUBSTANTIVE GROUND RAISING SECTION 234B INTEREST IN AY.2011-12 1 0 TH SUBSTANTIVE GROUND IN AY.2013-14 QUA SECTION 234A INTEREST OF RS.6 428/-; RESPECTIVELY. 15. LASTLY COMES EDUCATION CESS DISALLOWANCE/ADDITION OF RS.32 49 207/-. THE REVENUE VEHEMENTLY CONTENDED THA T SUCH A CLAIM IS NOT ALLOWABLE BEING A TAX U/S.40(A)(II) OF THE ACT. HON'BLE BOMBAY HIGH COURTS RECENT DECISION IN SESA G OA LTD. VS. JCIT [423 ITR 426] (BOM) AND CHAMBAL FERTILISERS & CHEMICALS LTD. VS. JCIT (ITA NO.52 & 68 OF 2018) ( 2019) [107 TAXMANN.COM 484] (RAJASTHAN) RELY ON THE CBDT CIRCULA R DT.18-05-1967 TO HOLD THAT THE EXPRESSION TAX IN THE A BOVE STATUTORY PROVISION DOES NOT INCLUDE A CESS. WE THUS A CCEPT THE ASSESSEES INSTANT 10 TH SUBSTANTIVE GROUND IN AY.2010-11. SAME ORDER TO FOLLOW IN ITS CORRESPONDING SUBSTANTIVE G ROUNDS NO.12 IN AYS.2011-12 & 2012-13 6 TH SUBSTANTIVE GROUND IN AY.2013-14 AND 12 TH SUBSTANTIVE GROUND IN AY.2014-15; RESPECTIVELY. THE ASSESSEES LEAD APPEAL 140/HYD/2015 IS PARTLY ALLOWED IN ABOVE TERMS. 16. WE NEXT MOVE ON TO AY.2011-12. THE ASSESSEES F IRST TO 7 TH 11 TH AND 12 TH SUBSTANTIVE GROUNDS ALREADY STAND ADJUDICATED IN PRECEDING PARAGRAPHS. COMING TO 8 TH AND 9 TH SUBSTANTIVE GROUNDS RAISING THE ISSUE OF SECTION 14A AGRO TECH FOODS LIMITED (GROUP CASES) :- 16 -: DISALLOWANCE ALONG WITH CONSEQUENTIAL MAT PROVISIONS U/S.115JB OF THE ACT INVOLVING A SUM OF RS.86 127/- LEARNED COUNSEL IS MORE THAN FAIR IN NOT PRESSING FOR THE SAME KEEPING IN MIND THE SMALLNESS OF THE AMOUNT. 17. COMING TO 10 TH SUBSTANTIVE GROUND INVOLVING THE ISSUE OF SHORT CREDIT OF TDS DEDUCTED TO THE TUNE OF RS.9 25 955/ - BOTH THE LEARNED REPRESENTATIVE ARE AD IDEM THAT THE SAME BE RESTORED BACK TO THE ASSESSING OFFICER FOR HIS AFRESH FACTUAL VERIFICATION. WE ORDER ACCORDINGLY AND RESTORE THIS 1 0 TH SUBSTANTIVE GROUND BACK TO THE ASSESSING OFFICER FOR EXAMINING THE ISSUE OF SHORT CREDIT OF TDS DEDUCTED AT SOURCE. THIS ASSESSEES SECOND APPEAL ITA NO.210/HYD/2016 I S PARTLY ALLOWED. SAME ORDER TO FOLLOW IN ASSESSEES 1 0 TH SUBSTANTIVE GROUND FOR AY.2012-13 APPEAL IN ITA NO.487/HYD/2017 AND 9 TH SUBSTANTIVE GROUND FOR AY.2014-15 APPEAL IN ITA NO.1361/HYD/2018 RAISING THE VERY ISSU E OF SHORT CREDIT OF TDS DEDUCTED INVOLVING VARYING SUM(S). 18. NEXT COMES AY.2012-13 INVOLVING ASSESSEES APPEA L ITA NO.487/HYD/2017. ITS 1 TO 6 10 TH AND 12 TH SUBSTANTIVE GROUNDS ALREADY STAND ADJUDICATED IN PRECEDING PARAGR APHS. LEARNED COUNSEL IS FAIR ENOUGH IN NOT PRESSING FOR TH E ASSESSEES 7 TH AND 8 TH SUBSTANTIVE GROUNDS REGARDING SECTION 35(2AB) DISALLOWANCE OF RS.5 000/- AND CAPITAL EXPEN DITURE DEDUCTION U/S.35(1)(IV) R.W.S.35(2)(IA) OF THE ACT INV OLVING SUM OF RS.40 23 714/-; RESPECTIVELY. THESE GROUNDS ARE ACCORDINGLY DECLINED IN FOREGOING TERMS. 19. THE ASSESSEES 9 TH GROUND CHALLENGES CORRECTNESS OF BOTH THE LOWER AUTHORITIES ACTION DENYING SECTION 32(1) DE PRECIATION AGRO TECH FOODS LIMITED (GROUP CASES) :- 17 -: ON THE CAPITAL EXPENDITURE INCURRED FOR THE PURPOSE OF SCIENTIFIC RESEARCH INVOLVING A SUM OF RS.40 23 714 /-. IT TRANSPIRES DURING THE COURSE OF HEARING THAT THE DRPS ORDER IN PG.8 PARA 2.52 IN AY.2013-14 HAS ALREADY ACCEPTED A N IDENTICAL CLAIM OF DEPRECIATION OF CAPITAL EXPENDITURE INCURRED FOR THE PURPOSE OF SCIENTIFIC RESEARCH. LEARNED PANE L HEREIN HAS DISALLOWED THE ASSESSEES SECTION 37 CLAIM BY TREATING THE SAME AS AN INSTANCE OF CAPITAL EXPENDITURE. ALL THESE CLINCHING FACTS HAVE GONE UN-REBUTTED FROM THE REVENUES SIDE. WE THUS HOLD THAT ONCE LEARNED LOWER AUTHORITIES HAVE THEMSELVE S TREATED THE ASSESSEES CLAIM UNDER CAPITAL HEAD IT IS V ERY MUCH ENTITLED TO BE CONSIDERED FOR THE IMPUGNED DEPREC IATION AS PER LAW. THE SAME IS THEREFORE ACCEPTED FOR STATIS TICAL PURPOSES. THE ASSESSING OFFICER SHALL DECIDE THE COR RESPONDING BLOCK OF ASSETS VIZ-A-VIZ ASSESSEES CAPITAL EXPENDI TURE AS PER LAW. 20. WE ARE NOW LEFT WITH THE ASSESSEES ASSESSEES 11 TH SUBSTANTIVE GROUND QUA ADDITION OF THE ALLEGED REFUND ISSUE U/S.143(1) OF THE ACT ALONG WITH SECTION 234D INTEREST INVOLVING SUMS OF RS.37 47 653/- AND RS.6 55 839/-; RESPECTIVELY. THE ASSESSEES ONLY CASE IS THAT IT HAD NOT RECEIVED ANY REFUND AND THEREFORE THE IMPUGNED ADDITI ON IS NOT SUSTAINABLE. THE REVENUE ON THE OTHER HAND PLEADED THAT THIS ISSUE REQUIRES FACTUAL VERIFICATION. WE THUS RESTORE THE SAME BACK TO THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITION ON THE TWO COUNTS OF REFU ND AND INTEREST AFTER NECESSARY FACTUAL VERIFICATION. THI S GROUND AGRO TECH FOODS LIMITED (GROUP CASES) :- 18 -: IS TAKEN AS ACCEPTED FOR STATISTICAL PURPOSES. THIS AP PEAL ITA NO.487/HYD/2017 IS PARTLY ALLOWED. 21. NOW COMES ASSESSEES APPEAL 2170/HYD/2017. IT TRANSPIRES AT THE OUTSET THAT ALL OF ITS SIX SUBSTANTIVE GRO UNDS I.E. TRANSFER PRICING ADJUSTMENT ON ROYALTY (1 TO 3) REIMBURSEMENT OF EXPENSES (4) DEDUCTION OF CAPITAL EXPENDITURE VIZ-A-VIZ DEPRECIATION (5) AND EDUCATION CESS AND SECONDARY EDUCATION CESS (ADDITIONAL GROUND) ALREADY STAND ADJUDICATED IN PRECEDING PARAGRAPHS. WE THUS PARTLY ACCEPT THE INSTANT APPEAL ITA NO.2170/HYD/2017 AS WELL IN THE SAME TERMS. 22. LASTLY COMES THE ASSESSEES APPEAL ITA NO.1361/HYD/2018 FOR AY.2014-15. ITS FIRST TO THREE SUBSTANTIVE GROUNDS TOUCH UPON THE ISSUE OF ROYALTIES PAYMENTS 9 TH SUBSTANTIVE GROUND OF SHORT CREDIT OF TDS DEDUCTED SECTION 234A INTEREST (10 TH ) AND ADDITIONAL GROUND NO.12 OF EDUCATION AND SECONDARY EDUCATION CESS WHIC H ALREADY STAND ADJUDICATED IN OUR DISCUSSION IN PRECE DING PARAGRAPHS. LEARNED COUNSEL IS FAIR ENOUGH IN NOT PR ESSING FOR 4 TO 6 SUBSTANTIVE GROUNDS RAISING THE ISSUE OF REIMBUR SEMENT OF EXPENSES SECTION 35(2AB) DEDUCTION AND SECTION 35 (1)(I) CLAIM OF RS.2 93 738/- RS.17 88 837/- AND RS.8 94 034/-; RESPECTIVELY KEEPING IN MIND THE SMALLNESS OF THE SU M(S) THEREOF. THE REVENUES SIDE IS EQUALLY FAIR TO ASSESS EES CONCESSION. WE THUS REJECT SUBSTANTIVE GROUNDS 4 TO 6 AS NOT PRESSED THEREFORE. AGRO TECH FOODS LIMITED (GROUP CASES) :- 19 -: 23. THE ASSESSEES 7 TH SUBSTANTIVE GROUND SEEKS TO REVERSE THE LOWER AUTHORITIES ACTION DISALLOWING THE ADDITION AL DEPRECIATION U/S.32(1)(IIA) OF RS.26 78 046/- ON FIX ED ASSETS I.E. PLATFORM ELECTRICAL FITTINGS PACKING MACHINE WEIGHING MACHINE AND CURTAINS AS PER THE TPOS DRAFT ASSESSMENT ORDER DT.26-12-2007. THE REVENUES STAND AS PER LEARNED LOW ER AUTHORITIES DISCUSSION IS THAT THE SAME DO NOT FORM PAR T OF THE ASSESSEES PLANT AND MACHINERY. WE FIND NO MERIT IN THE INSTANT STAND SINCE ALL THESE ASSETS FORM VERY MUCH PART OF THE ASSESSEES FOOD PRODUCTS MANUFACTURING PROCESSING AN D PACKING BUSINESS. TAKE FOR INSTANCE THE CURTAINS WHICH HAVE BEEN PUT UP BETWEEN VACANT PLACES SO AS TO MAINTAIN MAXIMUM HYGIENE. CASE LAW CIT VS. K.K.ENTERPRISES [5 1 TAXMANN.COM 190] AND CIT VS. PARRY ENGINEERING AND ELECTRICAL PVT. LTD. [49 TAXMANN.COM 252] (GJ) HOLD TH AT SUCH ASSETS FORM PART AND PARCEL OF ASSESSEES PLANT AND MA CHINERY ONLY. WE THUS ACCEPT THE ASSESSEES IMPUGNED DEPRECIATI ON CLAIM OF RS.26 78 046/-. THIS 7 TH SUBSTANTIVE GROUND SUCCEEDS. 24. THE ASSESSEES 8 TH SUBSTANTIVE GROUND SEEKS DIRECTION TO THE ASSESSING OFFICER TO CONSIDER ITS RETURNED INCOME G OING BY THE REVISED THAN THE ORIGINAL RETURNS FIGURES. IT PRIMA-FACIE APPEARS THAT THE ASSESSEE HAD FILED ITS REVISED RETURN O N 14- 03-2016 WHICH HAS NOT BEEN TAKEN NOTE OF IN THE LOWER AUTHORITIES RESPECTIVE ORDERS. WE THUS ACCEPT THE ASSES SEES INSTANT SUBSTANTIVE GROUND FOR STATISTICAL PURPOSES AND D IRECT THE ASSESSING OFFICER TO CONSIDER THE REVISED COMPUTATION/RETURN AS PER LAW. THE ASSESSEES 11 TH SUBSTANTIVE GROUND RAISING THE ISSUE OF 234C INTEREST I S TREATED AS CONSEQUENTIAL IN NATURE. ITS INSTANT LAST APP EAL AGRO TECH FOODS LIMITED (GROUP CASES) :- 20 -: NO.1361/HYD/2018 IS PARTLY ALLOWED FOR STATISTICAL PURP OSES. NECESSARY COMPUTATION IN ALL THESE CASES TO FOLLOW AS PER LAW. THIS ASSESSEES INSTANT FIVE APPEALS ARE PARTLY ALLOWE D IN FOREGOING TERMS. A COPY OF THIS COMMON ORDER BE PLACE D IN THE RESPECTIVE CASE FILES. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH MARCH 2021 SD/- SD/- (LAXMI PRASAD SAHU) (S.S.GO DARA) ACCOUNTANT MEMBER JUDICIAL MEMB ER HYDERABAD DATED: 15-03-2021 TNMM AGRO TECH FOODS LIMITED (GROUP CASES) :- 21 -: COPY TO : 1.AGRO TECH FOODS LIMITED 31 SAROJINI DEVI ROAD SECUNDERABAD. 2.THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-1(1 ) HYDERABAD. 3.DISPUTE RESOLUTION PANEL (DRP) HYDERABAD. 4.DIRECTOR OF INCOME TAX (IT & TP) HYDERABAD. 5.ADDL.COMMISSIONER OF INCOME TAX (TRANSFER PRICING ) HYDERABAD. 6.D.R. ITAT HYDERABAD. 7.GUARD FILE.