2014 (4) TMI 923 - AT - Income Tax

Tribunal remands tax issues for fresh consideration in appeal cases.

The Tribunal allowed the appeal for the assessment year 2006-07 for statistical purposes, remanding the issues of entrance fee disallowance, technical ... Disallowance of entrance fees paid to the Bangalore Club – Held that:- Necessary materials have been produced before the AO as well as before the DRP with regard to nature of payment - the AO and the DRP have stated that no documentary evidences were produced before them to take a positive view in favour of the assessee, the issue was decided against the assessee company - no details are placed with regard to the nature of the payment, the issue cannot be decided on merits - one more opportunity need to be given to the assessee to prove its case - the assessee is directed to produce documentary evidence with respect to payment of entrance fee to Bangalore Club and nature and break up the expenses – thus, the matter is remitted back to the AO for fresh consideration – Decided in favour of Assessee. Issues Involved:1. Disallowance of entrance fee paid to Bangalore Club.2. Disallowance of technical assistance and training fees as capital expenditure.3. Transfer pricing adjustments under Section 92CA of the Income Tax Act.4. Manner of passing orders by the Assessing Officer/TPO.5. Disallowance of Information Technology fees.6. Levy of interest under Sections 234B and 234D of the Income Tax Act.Detailed Analysis:1. Disallowance of Entrance Fee Paid to Bangalore Club:The assessee company claimed an entrance fee of Rs. 3,10,995 paid to the Bangalore Club as a business expenditure. The Assessing Officer (AO) and the Dispute Resolution Panel (DRP) disallowed this expenditure, categorizing it as personal expenditure under Section 37(1) of the Income Tax Act. The DRP noted that the assessee failed to provide relevant details and documentary evidence to substantiate the claim that the expense was for business promotion. The Tribunal, recognizing the need for further examination, restored the issue to the AO for de novo consideration, directing the assessee to produce necessary documentary evidence.2. Disallowance of Technical Assistance and Training Fees as Capital Expenditure:The assessee incurred Rs. 29,89,812 towards technical assistance and training fees, which was disallowed by the AO and DRP as capital expenditure. The DRP supported the AO's view, stating the expenditure was an inseparable part of the know-how transfer agreement between the assessee and LM Glass Fibre A/S, Denmark. However, the Tribunal, referencing its own order for the assessment year 2007-08, restored this issue to the AO/TPO for fresh consideration.3. Transfer Pricing Adjustments under Section 92CA:The AO, based on the TPO's order, made transfer pricing adjustments by determining the Arm's Length Price (ALP) of international transactions, including management fees and selling commission, at Nil. The total adjustment amounted to Rs. 18,47,87,529. The DRP upheld the TPO's findings, stating that the assessee failed to provide evidence of services rendered by its Associate Enterprise (AE) justifying the payments. The Tribunal, consistent with its approach for the assessment year 2007-08, restored the transfer pricing issues to the AO/TPO for fresh consideration.4. Manner of Passing Orders by the Assessing Officer/TPO:The assessee challenged the procedural aspects of the orders passed by the AO/TPO. The Tribunal did not provide a separate ruling on this procedural challenge but implicitly addressed it by remanding the substantive issues back to the AO/TPO for de novo consideration.5. Disallowance of Information Technology Fees:For the assessment year 2008-09, the assessee contested the disallowance of Rs. 1,71,77,094 towards Information Technology fees. However, no arguments were raised during the hearing, leading to the dismissal of this ground by the Tribunal.6. Levy of Interest under Sections 234B and 234D:The assessee contested the levy of interest under Sections 234B and 234D. The Tribunal dismissed these grounds, stating that the levy of interest under these sections is mandatory and consequential.Conclusion:- The Tribunal allowed the appeal for the assessment year 2006-07 for statistical purposes, remanding the issues of entrance fee disallowance, technical assistance and training fees disallowance, and transfer pricing adjustments to the AO/TPO for fresh consideration.- The appeal for the assessment year 2008-09 was partly allowed for statistical purposes, with similar remands for transfer pricing adjustments and technical assistance and training fees disallowance.- The stay petition for the assessment year 2008-09 was dismissed as infructuous following the disposal of the appeal.Order Pronounced:The consolidated order was pronounced in the Open Court on 25th October 2013.