2013 (9) TMI 12 - AT - Income Tax

Tax Tribunal: Assessee wins on Transfer Pricing, Employee Loans, Revenue partly successful on Interest

The Tribunal allowed the assessee's appeals on Transfer Pricing issues, disallowance of Employee Housing Loan and Advances, exclusion of Receipts for ... Adjustment of transfer pricing - Method of computation - Held that:- In subsequent year the DRP has accepted the CUP method as the Most Appropriate Method - As no distinguishing facts have been brought on record, there is no reason why the directions issued by the DRP for AY 2006- 07 should not be followed for the year under consideration when the facts and the circumstances for payment of royalty are the same - AO is directed to examine the CUP offered by the assessee in its TP report and adjustment, if any, required should be made on that basis - Decided in favour of assessee. Claim of bed debt - Amounts paid for development of websites is allowed as business loss– If the websites had materialized, the expenditure could not have been viewed as capital expenditure because the website is put up for the purposes of day-to-day running of the business and even if one were to view that some enduring benefit is obtained by the assessee, the benefit cannot be said to accrue to the assessee in the capital field - A website is something where full information about the assessee’s business is given and it helps the assessee’s customers in dealing with it - A website constantly needs updating, otherwise it may become obsolete - It helps in the smooth and efficient running of the day-to-day business - The expenditure would have been allowable as revenue expenditure; as a corollary, when the website did not materialize, the amounts advanced to the companies who were engaged to develop the websites, when they became irrecoverable, can be written off and claimed as loss incidental to the business. The loss is thus allowable as business loss in terms of section 28 of the Act - Following decision of Deputy Commissioner of Income Tax Versus M/s Edelweiss Capital Ltd., Mumbai [2011 (2) TMI 284 - ITAT MUMBAI] - Decided in favour of assessee. Disallowance u/s 14A - Held that:- AO has applied Rule 8D by invoking the provisions of section 14A of the Act. It is now well settled that Rule 8D is applicable from AY 2008-09 as is held in the case of DCIT vs. Godrej and Boyce Manufacturing Co. Ltd., [2010 (8) TMI 77 - BOMBAY HIGH COURT]. The CIT(A) has given a very categorical finding that the dividend warrants were credited electronically. However, the CIT(A) has restricted the disallowance to ₹ 2 lakhs, which, in our considerate view and on the facts of the case appear to be very reasonable. No reason to interfere with the findings of the Ld. CIT(A) - Decided in favour of assessee. Issues Involved:1. Transfer Pricing Issues2. Disallowance of Employee Housing Loan and Advances Written Off3. Exclusion of Receipts for Deduction under Section 80HHC4. Exclusion of Items of Income for Deduction under Section 80IB5. Charging of Interest under Section 234D6. Disallowance under Section 14A7. Payment of Back WagesDetailed Analysis:1. Transfer Pricing Issues:- Facts: The assessee, a public limited company, entered into a Technology Transfer Agreement with Ciba Specialty Chemicals Inc. The assessee used the Comparable Uncontrolled Price (CUP) method to determine the Arm's Length Price for royalty payments. The TPO rejected the CUP method and adopted the Transactional Net Margin Method (TNMM), making an adjustment of Rs. 78,28,908/-.- CIT(A) Decision: The CIT(A) upheld the TPO's rejection of the CUP method.- Tribunal Decision: The Tribunal found that in subsequent years, the DRP accepted the CUP method as the Most Appropriate Method. It directed the AO to examine the CUP method offered by the assessee and make adjustments if necessary.- Outcome: Grounds related to Transfer Pricing issues were allowed.2. Disallowance of Employee Housing Loan and Advances Written Off:- Facts: The AO disallowed the write-off of employee housing loans and advances, totaling Rs. 6,23,537/-. The CIT(A) allowed part of the claim but confirmed the disallowance of Rs. 4,67,633/- and Rs. 1,55,904/-.- Tribunal Decision: The Tribunal directed the AO to allow the claim as a business loss, following the precedent set in Edelweiss Capital Ltd.- Outcome: Ground related to the disallowance was allowed.3. Exclusion of Receipts for Deduction under Section 80HHC:- Facts: The AO excluded 90% of various receipts from the profits for calculating deduction under Section 80HHC, totaling Rs. 76,94,679/-.- CIT(A) Decision: The CIT(A) upheld the AO's decision.- Tribunal Decision: The Tribunal restored the issue to the AO to verify each item before concluding.- Outcome: Ground related to exclusion of receipts was allowed for statistical purposes.4. Exclusion of Items of Income for Deduction under Section 80IB:- Facts: The AO excluded certain items of income from eligible profits for Section 80IB deduction, totaling Rs. 31,14,797/-.- CIT(A) Decision: The CIT(A) allowed relief for some items but upheld the exclusion for others.- Tribunal Decision: The Tribunal restored the issue to the AO to decide afresh in light of the decision in Associated Capsules Pvt. Ltd.- Outcome: Ground related to exclusion of items was allowed for statistical purposes.5. Charging of Interest under Section 234D:- Facts: The AO charged interest under Section 234D, which was deleted by the CIT(A).- Tribunal Decision: The Tribunal followed the jurisdictional High Court decision in CIT vs. Indian Oil Corporation Ltd. and directed the AO to levy interest as per law.- Outcome: Revenue's appeal on this ground was allowed.6. Disallowance under Section 14A:- Facts: The AO applied Rule 8D and disallowed Rs. 1,33,66,174/- under Section 14A. The CIT(A) restricted the disallowance to Rs. 2,00,000/-.- Tribunal Decision: The Tribunal upheld the CIT(A)'s decision, finding it reasonable.- Outcome: Revenue's appeal on this ground was dismissed.7. Payment of Back Wages:- Facts: The AO disallowed back wages paid to a worker. The CIT(A) allowed the deduction.- Tribunal Decision: The Tribunal upheld the CIT(A)'s decision, following the precedent in the assessee's own case for AY 2001-02.- Outcome: Revenue's appeal on this ground was dismissed.Summary of Results:- Assessee's appeals in ITA 7779 and ITA 7780 were partly allowed.- Revenue's appeals in ITA 7528 and ITA 7529 were partly allowed.- Assessee's CO 174 and CO 151 were dismissed.- Assessee's appeal in ITA 792 was allowed.- Revenue's appeal in ITA 1034 was dismissed.Order pronounced in the open Court on 28th August, 2013.