Income Tax Appellate Tribunal - Hyderabad
Agro Tech Foods Limited , Secunderabad vs Jt. Commissioner Of Income Tax (Osd), ... on 15 March, 2021
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 Deputy
210/Hyd/16 2011-12 Commissioner of
487/Hyd/17 2012-13 Agro Tech Foods Income Tax,
Limited, Circle-1(1),
2170/Hyd/17 2013-14 Secunderabad Hyderabad
[PAN: AAECA0303M] Joint Commissioner
1361/Hyd/18 2014-15 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
ORDER
PER S.S.GODARA, J.M. :
These five assessee's appeals for AYs.2010-11 to 2014-15 arise against the DCIT-I, Hyderabad's order(s) dated 31-12- 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 Income Tax Act, 1961 [in short, 'the Act'] in latter three cases; respectively.
2. Heard both the parties through Shri Danesh Bafna and Shri Sai, learned authorised representative and learned CIT-DR; respectively. Case files and records stand perused.
:- 2 -:
Agro Tech Foods Limited (Group cases)
3. It transpires during the course of hearing that the assessee's 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 brevity. We treat AY.2010-11 involving ITA No.140/Hyd/2015 as the lead assessment year containing the following substantive grounds:
"1.On the facts and in the circumstances of the case and in law, the Assessment Order ('Order') passed by the Learned Assessing 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 case and in law, the Ld.AO erred in rejecting the Transfer Pricing ('TP') documentation maintained by the Assessee by invoking provisions of subsection 3 of section 92C of the Act and contending that the information or data used in the computation of the arm's length price is not reliable or correct.
3. On the facts and in the circumstances of the case and in law, the Ld. AO erred in arbitrarily determining the arm's length 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 AE. While doing so, the Ld. AO erred in rejecting /ignoring that:
i. the approach adopted by the Appellant by aggregating the royalty payment under the manufacturing activity for determination of the arm's length nature of the payment in the TP documentation; and ii. the commercial rationale put forward during the proceedings show casing the necessity of the trademark for the Appellant for undertaking the relevant business.
The Appellant therefore prays that the aforesaid adjustment be deleted.
4. On the facts and in the circumstances of the case and in law, the Ld.AO erred in determining the arm's length price of the professional fees paid to the AE as NIL instead of Rs. 21,394,873· While doing so, the Ld. AO erred in rejecting / ignoring that:
i. the Appellant had supported the claims with appropriate evidences during the assessment proceedings; and ii. there was commercial rationale and expediency in availing the services from the AEs :- 3 -:
Agro Tech Foods Limited (Group cases) The Appellant therefore prays that the aforesaid adjustment be deleted.
5. On the facts and in the circumstances of the case 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 received from AE. The Appellant prays that the aforesaid adjustment be deleted.
6. On the facts and in the circumstances of the case and in law, the Ld.Panel erred in not adjudicating the ground on allowance of expenditure under section 35D of the Act, while giving directions under Section 144C(5) of the Act.
7. On the facts and in the circumstances of the case and in law, the Ld.AO has erred in allowing 1/5th of advertisement and sales promotion expenses of Rs. 8,66,71,253 under section 35D of the Act, instead of allowing entire expenditure under section 37(1) of the Act, claimed by the appellant in the return of income.
8. On the facts and in the circumstances of the case 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 case 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 ought 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 assessee's petition moved at this belated stage and that too, without explaining its act and conduct in not having agitated the very issue before the lower authorities.
6. We have given our thoughtful consideration to the foregoing rival arguments qua admission of the assessee's additional substantive ground No.10 that its education cess amount of Rs.32,49,207/- ought to have been treated as an allowable deduction. Hon'ble apex court's landmark decision in :- 4 -:
Agro Tech Foods Limited (Group cases) National Thermal Power Co. Ltd., Vs., CIT [229 ITR 383] (SC) as considered the All Cargo Global Logistics Ltd., Vs. DCIT (2012) [137 ITD 217] (SB) (Mumbai) holds that this tribunal can very well entertain such legal ground so as to determine correct tax liability of an assessee subject to the condition that all the relevant facts form part of the records. We make it clear that the disallowance of education cess has nowhere been contested at the Revenue's behest on facts. We thus accept the assessee's foregoing petition dt.25-09-2020 seeking to rase the impugned additional ground in all these assessment years.
7. We now come to the issue-wise adjudication of all the assessee's substantive grounds extracted in the preceding paragraphs. Its 1st to 5th substantive grounds challenge correctness of both the lower authorities' action determining the cost of royalty and professional charges involving sum(s) of Rs.95,37,451/- and Rs.2,13,94,873/-; respectively, as NIL thereby resulting in the adjustments in issue. Its further case in successive substantive grounds is that the lower authorities ought not to have disallowed 10% of reimbursement of expenses received from its overseas Associated Enterprise (AE) resulting in arm's 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 smallness of the sum(s) involved in all these assessment years provided that the same is not taken as a precedent in latter assessment years. The Revenue is equally fair in not opposing this concession. We thus decline the assessee's 5th substantive ground(s) in AY.2010-11, 6th substantive ground in AY.2011- :- 5 -:
Agro Tech Foods Limited (Group cases) 12 and 4th substantive ground in AY.2012-13 to 2014-15 as per the assessee's foregoing stand.
8. We now continue to proceed with the assessee's challenge made to transfer pricing adjustments of royalty and professional services (supra). There is hardly any dispute between the parties that the Transfer Pricing Officer's (TPO) detailed discussion in its Section 92CA(3) dt.28-08-2013 applies 'benefit test' as under:
"8.3 Intangible transactions:
During the year, the taxpayer has made payment on account of royalty and professional services. Both are intangible transactions and being separate class of transactions needs to be analysed separately. The Hon'ble ITAT, Mumbai, in UCB India Pvt. Ltd (317 ITR 292 (AT) Mumbai), and many other held that each class 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 paid as royalty. In this regard, the taxpayer in its TP document stated that it pays royalty for license to use the "ACT II' trademark for sale of popcorn in the Indian market. This transaction was combined with purchase of raw materials, since the royalty payment pertains to license to sell popcorn. Other than this no further information or justification was provided. Therefore the taxpayer was requested to provide and satisfy the benefit test vide this office letter dated 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 company entered the pop corn market and for this purpose company entered into an agreement with ConAgra Inc., selling pop corn under the brand name 'ACT II'. The tangible benefit that the company derived is that it has been able to add approximately Rs.61 crores to its turnover. The taxpayer has also compared the payment of royalty with 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 ownership interest in :- 6 -:
Agro Tech Foods Limited (Group cases) Licensee with about 48.1% of voting shares. The Licensor has granted an exclusive right and license to use of 'ACT II Logo' solely in connection with the manufacture, marketing, sale and distribution of the Act" Sachets, Act II Vending popcorn and Act" Microwave 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 India and 2% of net sales of products sold outside India.
• Act II Vending popcorn: 1% of Net Sales products sold 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 misleading 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 so of the total sales and computing royalty on total sales, which comprises of entirely different products is not true to the facts. The taxpayer was further show caused to satisfy the following conditions alongwith supporting documents-
a. The benefits derived by paying Royalty.
b. Whether the payment made is commensurate with the 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, would be prepared to pay for it.
d. The licensor is a minority shareholder indirectly holding 48.11% shares, whereas your company is a relatively old company already owing substantial brand by the name Sundrop and Rath. Therefore, the licensor has in a way has utilized your presence in the market to promote its own brand.
In response to the above show cause notice, the taxpayer filed a detailed reply on 19-08-2013. It is merely stated that 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 (Mauritius) Limited in the year 1997. Agro Tech Foods Ltd., (ATFL) is segmented under the following categories:
Branded Oils and Foods - led by the flagship brand, Sundrop, ATFL has expanded its brand portfolio through acquisition of the Rath :- 7 -:
Agro Tech Foods Limited (Group cases) vanaspati brand from SIEL Ltd. It also sells unrefined mustard oil under the Sudham barnd.
Health World Dried Green Peas brings to the consumer healthy, fresh green peas. Snack Pack is the only shelf stable pudding in the country; Swiss Miss is the only Hot Cocoa Mix available to Indian consumers.
Sourcing and Institutional Business - The sourcing and Institutional Business (SIB) division in ATFL started off as a Commodity Trading Team for the main purpose of sourcing edible oils for the Brand Edible Oils Groups. Its profile kept Widening with sourcing of other Agri commodities like rice, wheat, soya DOC & Mustard covering both Trading & Export.
Food Services - The food service business of the taxpayer in India supplying food products such as Lamb Weston, oils, popcorn to the hotels, restaurants and catering establishments. The food service business also deals in large packs of Sundrop oils, Cristal brand of oil, ACT " Popcorn, tomato products and others snack items.
Thus, the taxpayer is having presence in Indian markets since 1986 and has over the years developed a robust marketing and distribution networks. The main activity of the taxpayer is from other branded item in oils. The sale of popcorn forms part of food services which is covered in the main segment as that of Branded Foods. The total turnover of the taxpayer in F.Y. 2009-10 is Rs.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 activity is Rs.70.93 crs (I.y., Rs.61.18 crs), which is about 11% of the total sales and which in turn is exploited for the sale of popcorns also. Prior to the introduction of ACT II popcorn, the brand was rarely known in the Indian markets. Further, as per the functions performed by the taxpayer, the popcorn so imported are added with the required flavor to suit the taste of the Indian customer. The packaging requirements are also made to ensure adherence to applicable Indian statutory regulations. The taxpayer also imports corn in bulk which is then seasoned, packaged in small packs and sold as instant popcorn. Therefore, the taxpayer is carrying out a value addition 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 brand. It is the effort on the part of the taxpayer to promote the brand and for which the taxpayer ought to be compensated, rather, it paying the royalty.
:- 8 -:
Agro Tech Foods Limited (Group cases) Further, as per the published annual report, the taxpayer 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 -Development of scientific bends in carried out by the company 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 -Acquisition of new consumers for above R&C 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 Rs.Millions
a) Capital 0.91
b) Recurring 22.04
c) Total 22.95
d) Total R&D expenditure as 0.35%
percentage of turnover
In subsequent para of the annual report, the company has reported its strategy as regards the popcorn as under:
7.1.3. In the Snacks Category your company continued its focus on Act II popcorn, through sustained national media presence for the brand, significant increase in retail distribution and increasing awareness of the category.
In view of the above discussion, it is clear that it is the which has benefited from the presence of the taxpayer in Indian market since long and which has already developed a brand name itself. The AE has used the robust marketing and distribution channel already available with the taxpayer. The AE is also enjoying the benefits of the R&D on popcorn by the taxpayer. What AE sells is bland popcorns and it is what the taxpayer does is to make it suitable for :- 9 -:
Agro Tech Foods Limited (Group cases) the Indian tastes. Thus, this is the right case where 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 method could be that AE makes payment to licensee for such contribution other method could be to reduce the royalty payment appropriately. Since the fact that ACT II popcorn has a brand name itself in US and European markets, therefore, it would be appropriate to compensate the taxpayer for the effort it makes to promote the brand in Asian market. As the exact amount of contribution made by the taxpayer 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 compensation 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 of American brand is not paying any royalty. Similarly McCain Foods India Pvt. Ltd., which is se ling French fries and potatoes specialties are 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 royalty Rs.Nil and the excess payment of Rs.95,37,451/- is treated as adjustment u/s. 92CA of I.T. Act and the total income of the taxpayer 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 taxpayer has also taken assistance in developing implementation plans of manufacturing the above products as also has accessed the development laboratories of ConAgra Foods Inc. The taxpayer also paid the AE for conducting the food safety GAP assessment and audit of the prospective Peanut Butter Copacker. In this regard, the taxpayer was show caused to satisfy the following conditions alongwith supporting documents- a. The benefits derived from the receipt of services. b. Whether the payment made is commensurate with the benefits received.
:- 10 -:
Agro Tech Foods Limited (Group cases) c. Whether as a result of such payment, the recipient of the services, the taxpayer, resulted in any economic or commercial value to enhance its commercial position. The expected benefit must be sufficiently direct and substantial so that an independent 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 yes please quantify such services in terms of actual expenditure incurred 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 entity is prepared to pay for such a service in comparable circumstances.
f. The taxpayer's level of documentation and evidence to show that the services are actually rendered by the AEs to the taxpayer. If the services are actually rendered, the level of documentation 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 charged 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 taxpayer 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 professional fee for audit and consultancy related to food products and plants. On completion of the assignment, an audit report was issued to the company. This was a detailed document wherein a comprehensive report was furnished regarding audit of a particular foods plant. It also contained a recommendation on whether the company should associate itself with the plant. This report clearly 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 the consultant to provide consultancy services on sharing the IP regarding the production of Peanut Butter products and Granuala Bars and Snack Bar products. It was also to assist in developing potential implementation plants of manufacturing the above products in India as also to provide access to various development laboratories to make minor changes in the products to suit tastes of target customers and / or to meet the regulatory requirements of the country 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 :- 11 -:
Agro Tech Foods Limited (Group cases) the report submitted by the AE it is seen that the report pertains to the feasibility of the taxpayer being associated with Ruperel Manufacturing Plant at Mahuva. However as per the SOW contained the agreement, the payment is to be made towards sharing 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 paid is Rs. 2,13,94,873 which is about 43% of the sales which is not commensurate with the benefits reaped. Thus the taxpayer 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 still the payment was made; there are no benefits which have been derived; payment is not established to be commensurate with the benefit received; there is no economical/commercial enhancement; and no independent 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 professional charges is Rs.NIL and the excess payment of Rs.2,13,94,873/- is treated as adjustment u/s. 92CA of IT. Act and the total income 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 royalty as well as professional services stand upheld upto the Dispute Resolution Panel's (DRP) directions, finally culminating in the impugned addition.
9. Both parties reiterate their respective vehement stands against and in support of the twin 'ALP' adjustments. It is very much apparent from the TPO's detailed discussion in the preceding paras that he has applied 'benefit test' to hold that it is not the assessee, having very much a robust market presence but its overseas AE(s) who actually stood gained and therefore, cost of the twin heads of royalty as well as technical :- 12 -:
Agro Tech Foods Limited (Group cases) services deserve to be taken as NIL only. The first and foremost question that arises for our apt adjudication in this factual backdrop is that is as to whether such a 'benefit test' could be validly invoked in Section 92CA reference or not? Case law CIT Vs. Cushman and Wakefield (India) Pvt. Ltd., [269 CTR 16] (Del) and CIT Vs. EKL Appliances Ltd., (2012) [345 ITR 241](Del) hold that the TPO's jurisdiction is to analyse the assessee's international transactions viz-a-viz ALP thereof in the statutory reference made by the Assessing Officer than to ascertain or apply the actual 'benefit stand' on the gains derived there from. Their lordships are of the opinion that in both these contexts that the so called 'benefit test' needs to be satisfied from the view point of the assessee and common business prudence rather than the TPO questioning the taxpayer's wisdom.
10. We further notice that apart from principle imposing his own opinion on assessee's twin royalty and technical services payments, the TPO had adopted two comparables i.e., M/s.Bajoria Foods Pvt. Ltd., and McCain Foods India Pvt. Ltd., which nowhere indicate the fact that the assessment year(s) therein involved first year of introduction of the corresponding products in India. The TPO therefore also appears to have not given any due consideration to the clinching facts in the assessee's arm's length determination in these facts and circumstances.
11. The factual position is no different qua the latter aspect of assessee's payment of technical services of Rs.2,13,94,873/- as well. The assessee's agreement to this effect (paper book :- 13 -:
Agro Tech Foods Limited (Group cases) pg.629 to 642 in AY.2010-11) suggests that it had agreed to pay for the impugned charges in lies of consultancy services involving all quality control access to overseas facilities 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 assessee's professional/technical services availed. We thus accept the assessee's third and fourth substantive grounds in this lead AY.2010-11 to delete the impugned royalty and technical services payments adjustments of Rs.95,37,451/- and Rs.2,13,94,873/-; respectively. Same order to follow in assessee's ground Nos. 1 to 5 for AY.2011-12. Ground 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 assessee's favour in foregoing terms since not involving any distinction on facts.
13. We stay back in AY.2010-11. The assessee's sixth and 7th substantive grounds seek to reverse the lower authorities' 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 Revenue's stand herein supports the impugned disallowance that all these expenses have been correctly amortized u/s.35D of the Act being capital in nature thereby enabling the taxpayer to derive business advantage(s) in sales and marketing for the specified number of years. We find no :- 14 -:
Agro Tech Foods Limited (Group cases) reason to agree with the Revenue's foregoing stand. We make it clear that learner lower authorities themselves have been fair enough in not rebutting the impugned expenditure claim on facts since they have merely directed the assessee to amortise its advertisement and sales promotion expenses u/s.35D of the Act. This statutory provision comes into play in case an assessee's expenditure claim is in connection with a new 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 canvassed in the lower authorities' respective orders. We quote hon'ble apex court's landmark decision Taparia Tools Ltd., Vs. JCIT (2015) [372 ITR 605](SC) in these facts and circumstances that a revenue expenditure claim ought not to be disallowed merely the same could also be amortized as per Revenue's stand. We thus accept the assessee's 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 assessee's 5th, 6th and 7th substantive grounds raised in AY.2011-12 after noticing the clinching fact that the lower authorities have themselves not disallowed identical head of expenses in latter two assessment years i.e., AYs.2013-14 & 2014-15.
14. The assessee's 8th 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 assessee had filed its return of income on 08-10-2010 in view of the CBDT's press release dt.28-09-2010 extending time limit u/s.139(1) of the Act followed by the taxpayer's regular return upto 15-10- 2010. This clinching fact has gone un-rebutted from the :- 15 -:
Agro Tech Foods Limited (Group cases) departmental side. We direct the Assessing Officer to delete the impugned interest amount. Next issue of Section 234B interest of Rs.1,96,18,732/- raised in assessee's 9th substantive ground is treated as consequential in nature.
Same order to follow in assessee's 11th substantive ground raising Section 234B interest in AY.2011-12, 10th 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 that such a claim is not allowable being a 'tax' u/s.40(a)(ii) of the Act. Hon'ble Bombay High Court's recent decision in Sesa Goa 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 circular dt.18-05-1967 to hold that the expression 'tax' in the above statutory provision does not include a 'cess'. We thus accept the assessee's instant 10th substantive ground in AY.2010-11. Same order to follow in its corresponding substantive grounds No.12 in AYs.2011-12 & 2012-13, 6th substantive ground in AY.2013-14 and 12th substantive ground in AY.2014-15; respectively.
The assessee's lead appeal 140/Hyd/2015 is partly allowed in above terms.
16. We next move on to AY.2011-12. The assessee's first to 7th, 11th and 12th substantive grounds already stand adjudicated in preceding paragraphs. Coming to 8th and 9th substantive grounds raising the issue of Section 14A :- 16 -:
Agro Tech Foods Limited (Group cases) 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 10th 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 10th substantive ground back to the Assessing Officer for examining the issue of short credit of TDS deducted at source.
This assessee's second appeal ITA No.210/Hyd/2016 is partly allowed. Same order to follow in assessee's 10th substantive ground for AY.2012-13 appeal in ITA No.487/Hyd/2017 and 9th substantive ground for AY.2014-15 appeal in ITA No.1361/Hyd/2018 raising the very issue of short credit of TDS deducted involving varying sum(s).
18. Next comes AY.2012-13 involving assessee's appeal ITA No.487/Hyd/2017. Its 1 to 6, 10th and 12th substantive grounds already stand adjudicated in preceding paragraphs. Learned counsel is fair enough in not pressing for the assessee's 7th and 8th substantive grounds regarding Section 35(2AB) disallowance of Rs.5,000/- and capital expenditure deduction u/s.35(1)(iv) r.w.s.35(2)(ia) of the Act involving sum of Rs.40,23,714/-; respectively. These grounds are accordingly declined in foregoing terms.
19. The assessee's 9th ground challenges correctness of both the lower authorities' action denying Section 32(1) depreciation :- 17 -:
Agro Tech Foods Limited (Group cases) 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 DRP's order in pg.8 para 2.52 in AY.2013-14 has already accepted an identical claim of depreciation of capital expenditure incurred for the purpose of scientific research. Learned panel herein has disallowed the assessee's Section 37 claim by treating the same as an instance of capital expenditure. All these clinching facts have gone un-rebutted from the Revenue's side. we thus hold that once learned lower authorities have themselves treated the assessee's claim under capital head, it is very much entitled to be considered for the impugned depreciation as per law. The same is therefore accepted for statistical purposes. The Assessing Officer shall decide the corresponding block of assets viz-a-viz assessee's capital expenditure as per law.
20. We are now left with the assessee's assessee's 11th 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 assessee's only case is that it had not received any refund and therefore, the impugned addition 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 refund and interest after necessary factual verification. This ground :- 18 -:
Agro Tech Foods Limited (Group cases) is taken as accepted for statistical purposes. This appeal ITA No.487/Hyd/2017 is partly allowed.
21. Now comes assessee's appeal 2170/Hyd/2017. It transpires at the outset that all of its six substantive grounds 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 assessee's appeal ITA No.1361/Hyd/2018 for AY.2014-15. Its first to three substantive grounds touch upon the issue of royalties payments, 9th substantive ground of short credit of TDS deducted, Section 234A interest (10th) and additional ground No.12 of education and secondary education cess which already stand adjudicated in our discussion in preceding paragraphs. Learned counsel is fair enough in not pressing for 4 to 6 substantive grounds raising the issue of reimbursement 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 sum(s) thereof. The Revenue's side is equally fair to assessee's concession. We thus reject substantive grounds 4 to 6 as not pressed therefore.
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Agro Tech Foods Limited (Group cases)
23. The assessee's 7th substantive ground seeks to reverse the lower authorities' action disallowing the additional depreciation u/s.32(1)(iia) of Rs.26,78,046/- on fixed assets i.e., platform, electrical fittings, packing machine, weighing machine and curtains as per the TPO's draft assessment order dt.26-12-2007. The Revenue's stand as per learned lower authorities' discussion is that the same do not form part of the assessee's plant and machinery. We find no merit in the instant stand since all these assets form very much part of the assessee's food products manufacturing, processing and 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 [51 taxmann.com 190] and CIT Vs. Parry Engineering and Electrical Pvt. Ltd. [49 taxmann.com 252] (GJ) hold that such assets form part and parcel of assessee's plant and machinery only. We thus accept the assessee's impugned depreciation claim of Rs.26,78,046/-. This 7th substantive ground succeeds.
24. The assessee's 8th substantive ground seeks direction to the Assessing Officer to consider its returned income going by the revised than the original return's figures. It prima-facie appears that the assessee had filed its revised return on 14-
03-2016 which has not been taken note of in the lower authorities' respective orders. We thus accept the assessee's instant substantive ground for statistical purposes and direct the Assessing Officer to consider the revised computation/return as per law. The assessee's 11th substantive ground raising the issue of 234C interest is treated as consequential in nature. Its instant last appeal :- 20 -:
Agro Tech Foods Limited (Group cases) No.1361/Hyd/2018 is partly allowed for statistical purposes. Necessary computation in all these cases to follow as per law. This assessee's instant five appeals are partly allowed in foregoing terms. A copy of this common order be placed in the respective case files.
Order pronounced in the open court on 15 th March, 2021 Sd/- Sd/-
(LAXMI PRASAD SAHU) (S.S.GODARA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad,
Dated: 15-03-2021
TNMM
:- 21 -:
Agro Tech Foods Limited
(Group cases)
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.