TaxTMI 
TaxTMI 
2011 (5) TMI 852
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....epartment -do- -do- -do- 5. 5122/Del/2010 Assessee 2006-07 DRP 23-9-2010 16-12-2009 under section 143(3)/144C First we take appeal of the Revenue in the assessment year 2002-03, i.e. I.T. A. No. 4154/D/2006 In the first ground of appeal, it has been pleaded by the Revenue that the learned Commissioner of Income-tax (Appeals) has erred in holding the service income receipt of Rs. 12,67,04,206 as business income. The brief facts of the case are that assessee has filed its return of income on October 28, 2002 declaring total income at nil. The case of the assessee was selected for scrutiny assessment and a notice under section 143(2) dated October 17/24, 2005 was sent through a registered post. The Assessing Officer felt that accounts of the assessee are of complex nature after taking necessary approvals he sent for special audit of the accounts. Shri S.C. and Associates was appointed as special auditor. This reference was challenged before the hon'ble High Court but ultimately issue was decided against the assessee. The special auditor has handed over the report dated October 5, 2005. Before adverti....
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.... (Appeals) on pages 5 and 6. The Assessing Officer treated this service income as income from other sources. According to the Assessing Officer, in the earlier assessment years, the service income received was equivalent to the cost incurred. Whereas in this assessment year, the income received as equivalent to 110 per cent. of the expenditure. The Assessing Officer doubted the agreement itself. According to him, the agreement is not duly signed, witnessed nor executed on stamp paper. He further observed that the very dominant intention of the assessee, right from the beginning was never to enter into any business activity, but to secure and pass on the income earned by the international companies in Indian sub-continent without payment of tax. He also observed that in order to claim the expenditure incurred in excess of its receipts as in the earlier years, the assessee through some device alleged during such years claimed such losses as business losses, contrary to the facts and circumstances. According to the Assessing Officer, the income alleged to have been received by the assessee, i.e., 110 per cent of the total expenditure reimbursed is not on account of exploitation for bu....
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....ce income earned by the appellant is not a business income but income from other sources, however, in complete contradiction, the expenditure which forms the basis for computation of the service income has been held to be business expenditure. Also the perusal of assessment order reveals that the Assessing Officer has not given any concrete reasons to support the action of treating service income as 'income from other sources'. There is a lack of reasoning to support the Assessing Officer's conclusion that the appellant was not carrying on any business, or that the service income earned by it was not derived from business. In my view, the existence and operation of the Pizza Hut Restaurants and KFC Restaurants in various cities across India can be seen by anybody and needs no proof. These outlets are either operated by the appellant or operated through franchisees. These franchisees have been provided with support services on behalf or the brand holders as discussed earlier. In addition to the provision of these services to the franchisee, the appellant has also provided services to the brand holders in the U.S.A. by way of collection and remittance of royalty, providing th....
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....s business income only and the appeal is allowed on this ground." Before us, the learned Departmental representative relied upon the order of the Assessing Officer and pointed out that the Assessing Officer has observed that income was earned by the assessee without exploitation of any business assets. On the other hand, learned counsel for the assessee relied upon the order of the learned Commissioner of Income-tax (Appeals). He took us through the submissions reproduced by the learned Commissioner of Income-tax (Appeals) on pages 5 to 10 of the impugned order. We have duly considered the rival contention and gone through the record carefully. The learned first appellate authority has reproduced the submissions of the assessee. The assessee in its submissions has pointed out that section 2(13) provides the definition of expression "business" according to which business includes any trade, commerce, manufacture or any adventure or concern in the nature of trade, commerce or manufacture. In various authoritative pronouncement of the hon'ble Supreme Court and the hon'ble High Court, meaning and scope of expression "business" has been propounded. It is not necessary to recite....
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....nt company, i.e., Yum Restaurant International and not making payment to it. Taking into consideration the detailed submission by the assessee, which have duly been reproduced by the learned Commissioner of Income-tax (Appeals) coupled with the finding recorded by the learned Commissioner of Income-tax (Appeals) (extracted supra), we are of the view that the Assessing Officer miserably failed to appreciate the facts and circumstance. The assessee has been offering income from consultancy, etc., as a business income. It has duly been accepted by the Department since 1998-99. The Assessing Officer without assigning any valid reason concluded that it is an income from other sources. On the other hand, the learned first authority has considered this issue in right perspective. Therefore, we do not find any merit in this ground of appeal it is rejected. Ground No. 2 : In this ground of appeal, grievance of the Revenue is that the learned Commissioner of Income-tax (Appeals) has erred in deleting the addition of Rs. 12,60,21,989. The brief facts of the case are that the assessee is in the business of franchising Pizza Hut and Kentucky Fried Chicken Restaurant in India for which it ....
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....ssessing Officer did not accept this contention. He observed that invoices alleged to be raised inadvertently, were attached with original voucher, "advances others" was debited instead of the name of the party in the voucher. Why different invoices were signed on the same day by different persons, etc. The learned Commissioner of Income-tax (Appeals) has deleted the addition by observing that the Assessing Officer has made the addition only on presumption basis. The said assumption is purely on two pieces of paper ; have they been acted upon or not ? How the money has travelled is not discernible ? With the assistance of the learned representative, we have gone through the record carefully. The assessee has explained its position that these invoices were prepared inadvertently. It has filed the affidavit of the director, Mr. Ajay Bansal, who has explained the mistake. The Transfer Pricing Officer had also accepted the case of the assessee about the arm's length prices. The invoices involved an international transaction. Had they paid by virtue of the alleged invoices then there should be entries in the bank account and there should be trail of the money. The Assessing Officer h....
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....ssee has raised debit note for Pepsi for receiving this contribution. While making the payment to the assessee Pepsi had deducted taxes at source. The assessee had passed on this amount to its subsidiary company, i.e., YRIPL to be incurred on advertising media and promotional activities. It had not deducted any tax at source while making this payment. The Assessing Officer has made the addition on the ground that Pepsi has made the payment to the assessee. The assessee on its own has raised a debit note. Credit for taxes deducted at source by Pepsi was claimed by the assessee in its return of income. The assessee did not claim the amount transferred to its subsidiary concern, i.e., YRIPL as its expenditure. It has not deducted taxes at source at the time of transferring the amount. In this way the learned Assessing Officer has made the addition. Dissatisfied with the addition, the assessee carried the matter in appeal before the learned Commissioner of Income-tax (Appeals). It was contended by the assessee that even if this amount was treated as income of the assessee the corresponding expenditure has been allowed to it. Thus, there will not be any tax implication on the assesse....
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.... the capacity of a collecting agent. It has relied upon the judgment of the hon'ble Supreme Court in the case of CIT v. Bijli Cotton Mills P. Ltd. reported in [1979] 116 ITR 60 (SC), CIT v. Sitaldas Tirathdas reported in [1961] 41 ITR 367 (SC) and the judgment of the hon'ble Allahabad High Court in the case of CIT v. U.P. Upbhokta Sahkari Sangh Ltd. reported in [2007] 288 ITR 106 (All). We have considered all these contentions but we do not find any discussion on these issues in the assessment order. Somewhat similar is again by the assessee in its ground No. 2 which will be discussing in the later part of the order. The Assessing Officer has made the observation in one paragraph on page 8. The reasoning assigned by the learned Commissioner of Income-tax (Appeals) is that the assessee has debited a similar expenditure of Rs. 5,18,33,006 in the profit and loss account towards marketing contribution to YRIPL. It has been fully allowed by the Assessing Officer. From reading of both orders it is not discernible whether assessee has included this amount in Rs. 5,18,00,000 or not. The case of the Assessing Officer is that it has received this amount from Pepsi Food it and ought to acc....
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....the books from an unexplained sources and after withdrawal taking place from the bank the said cash was returned to that source. After taking into consideration the detailed finding recorded by the learned Commissioner of Income-tax (Appeals) we do not find any force in this ground of appeal it is rejected. Ground No. 5 The grievance of the Revenue in this ground is that the learned Commissioner of Income-tax (Appeals) has erred in deleting the disallowance of Rs. 3,23,01,939 which was paid by the assessee on account of royalty expenses. At the cost of repetition, it is observed that the primary business activity of the assessee relates to the operation and development Pizza Hut and Kentucky Fried Chicken restaurant, in the Indian sub continent, For this purpose, the assessee-company had entered into a technology licence agreement on April 1, 1995 with Kentucky Fried Chicken HI. Similarly, technology licence agreement has been executed between the assessee and the Pizza Hut on January 15, 1996. As per these agreements, the assessee has been granted the rights to use the technology and system in the business of operating service restaurant such as Kentucky Fried Chicken res....
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.... out that admissibility of expenditure in the nature of licence fee paid is governed by the provisions of section 37(1) of the Income-tax Act, 1961. The expenditure under this section can be claimed by the assessee, if the assessee satisfied the conditions flowing out from the section. The conditions are that expenditure should not be of the nature described under sections 30 to 36. It should not be of a capital nature and it should not be of a personal expenditure. The expenditure should have been laid out or expended wholly and exclusively for the purpose of the business. It was explained before the learned first appellate authority that the learned Assessing Officer has failed to construe the approval letters in true perspective. It was also pointed out that fee paid in technology transfer case can be said to be both royalty and fee for technical services. The SIA has been using the terms royalty and technical service fee loosely and interchangeably in its various approval letters. The assessee has explained that nomenclature licence fee as royalty is irrelevant consideration so long as the licence fee payment is justified and indispensable to the assessee's business. Accor....
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....23,01,939 under section 40A(2)(b) in the tax audit report. As clarified by the appellant the impugned payment is not covered under section 40A(2)(b) irrespective of this clarification the impugned payment cannot be said to be excessive or unreasonable taking into account the fact that the licence fee/royalty has been paid at 5 per cent. (net of taxes) as per the Government approvals and also the aforesaid transaction being in the nature of an international transaction, the Transfer Pricing Officer vide its order dated February 18, 2005 has held the same to be at the arm's length price. Thus, the disallowance of Rs. 3,23,01,939 being without any basis, is deleted. 9.14 In view of the above discussion, the disallowance of Rs.3,23,01,939 made by the Assessing Officer being without any basis is deleted and the appeal is allowed on this ground." With the assistance of the learned representative, we have gone through the record carefully. The main reason for disallowing the royalty payment by the assessee to M/s. KFC International Holding Inc. and M/s. Pizza Hut with whom it had entered into technology licence agreement is that the Government of India has permitted the assessee to ....
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....ther words, the assessee should not bear the overhead expenses at the head office pertaining to YRMPL. The Assessing Officer has allocated the expenses in equal, i.e., 50 per cent. for YRMPL and 50 per cent. for the assessee. In this way, he worked out a disallowance of Rs. 3,26,01,574. On appeal, the learned Commissioner of Income-tax (Appeals) deleted the disallowance. With the assistance of the learned representative, we have gone through the record carefully. It emerges out from the record that YRMPL was incorporated on June 8, 1999. It is a 100 per cent. owned subsidiary of the assessee. It has been incorporated to carry out advertisement, marketing and promotion activities of the assessee as well as various franchise. The assessee had entered into a tripartite agreement with its franchise and YRMPL. As per this agreement, the franchise shall pay AMP contribution to YRMPL and the assessee may not pay a separate contribution. In a way, YRMPL was to carry out the activities on no profit no loss basis. The Assessing Officer has disallowed the expenses which are attributable to YRMPL but in fact, he ought to have not disallowed any such amount because ultimately it is the asses....
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....metax (Appeals) has considered these aspects and observed that assessee has produced schedule of assets before the Assessing Officer. There may be some discrepancy but that does not mean that total depreciation would be disallowed to the assessee. As far as the assets sold out in the assessment year 1999-2000 is concerned, the learned Commissioner of Income-tax (Appeals) has already directed the Assessing Officer to give effect to the outcome of assessment proceeding in the assessment year 1999-2000 in this year also. On due consideration of the facts and circumstances, we are of the view that the Assessing Officer has highlighted certain discrepancies in the maintenance of written down value of the assets as well as identification of each assets. There may be some shortcomings but that does not mean that the assessee was not having any asset and they were not used for the purpose of business. In our opinion, the Assessing Officer ought to have identified each item and find out how that item is treated in the block of assets, if it is established that those assets were not used for the purpose of the assessee's business then he should make out a case for disallowance of dep....
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....or item appears to be taxable in the present assessment years. The other two items have been considered by the learned Commissioner of Income-tax (Appeals) as taxable in this year on the ground that tax rates are similar. It will create unnecessary complication by excluding these receipts from here and including them in the assessment year 2001-02. Considering the finding of the learned Commissioner of Income-tax (Appeals), we do not wish to interfere in it. This ground of appeal is rejected. Ground No. 13 This ground will be taken along with ground No. 6 of the assessee's appeal. Ground No. 14 In this ground of appeal grievance of the Revenue is that the learned Commissioner of Income-tax (Appeals) has erred in deleting the disallowance of Rs. 5,56,428. The brief facts of the case are that at the end of the year, the assessee has made certain provisions on the basis of the mercantile system of accounting followed by it. According to the Assessing Officer, this provision was not utilised by the assessee in the next assessment year. Therefore, in his opinion, excess provision deserves to be disallowed. The learned Commissioner of Income-tax (Appeals) deleted the di....
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....ee under section 154 of the Income tax Act, the Assessing Officer himself has rectified the order. In view of the above, this ground of appeal is rejected. Ground No. 17 In this ground of appeal, grievance of the Revenue is that the learned Commissioner of Income-tax (Appeals) has erred in deleting the interest charged by the Assessing Officer under section 234D of the Income-tax Act. Learned counsel for the assessee at the very outset submitted that this issue is covered in favour of the assessee by the order of the Special Bench of the Tribunal in the case of ITO v. Ekta Promoters P. Ltd. [2008] 305 ITR (AT) 1 (Delhi). He also pointed out the hon'ble Delhi High Court has also affirmed the order of the Tribunal in I. T. A. No. 491/2008 rendered in the case of Director of Income-tax v. Jacabs Civil Incorporated [2011] 330 ITR 578 (Delhi). He placed on record copy of the hon'ble High Court's decision dated August 30, 2010. The Special Bench of the Tribunal has held that interest under section 234D cannot be leviable prior to the assessment year 2004-05 because operation of this section would be perspective in nature. In view of the judgment of the hon'ble Delhi High Court this....
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....tising contribution from M/s. Dodsals Corporation to the tune of Rs. 26,01,700 without deducting the TDS, out of which Rs. 14,65,706 was actually spent by the assessee during the year. The amount of Rs.14,65,706 was actually spent by the assessee during the year. The amount of Rs. 14,65,706 was booked as income as well as expenditure and also showed the balance amount of Rs. 11,35,994 as liability under the head of 'Accrued marketing'." It is noticed that the assessee disclosed and spent Rs. 14,65,706 as advertising contribution out of a total of Rs. 26,01,700 received from M/s. Dodsals Hotels and Resorts P. Ltd. The balance, Rs. 11,35,994 was shown as liability under the head of "Accrued marketing". The assessee was thus required to explain as to why credits of Rs. 11,35,994 be not treated as its income. The assessee failed to place on record any reply. It is thus presumed that the assessee has nothing to say, thus Rs. 11,35,994 is treated as income (understated income of Rs. 11,35,994). The appeal to the learned Commissioner of Income-tax (Appeals) did not bring any relief to the assessee. The assessee has contended that every receipt is not an income. The Assessing Offi....
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....ds of the assessee. While dealing with grounds Nos. 1 and 2 of the Revenue's appeal in the preceding paragraph, we have considered the nature of business carried out by the assessee. As per its memorandum of association, it is required to provide consultancy and advisory services in connection with the establishment, organisations, financing, management and operation of restaurants, cafes and cafeterias, etc. In performance of activities, it is also conducting advertisement media and marketing operations. The assessee had made an arrangement that this AMP activity would be carried out by way of its 100 per cent. subsidiary, i.e., "YRMPL". It may be true that the subsidiary is actually carrying out advertisement activities but it is the assessee who is collecting the money first and then transmitting to the subsidiary concerned. The business line of the assessee is also similar. Its arrangement with the subsidiary would not make much differences. The decision of the hon'ble Supreme Court was relied upon by the assessee in the case of Bijli Cotton Mills P. Ltd. [1979] 116 ITR 60 (SC), in that case, the assessee has received certain amounts towards Dharmarth charges. This nominal amou....
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....f Rs. 20,000 in the hands of the original landowner, how can it fetch a rent of Rs. 1,25,000 per month, more so by way of agreement of even date. In ground No. 4, the assessee has challenged the disallowance of Rs.7,50,000. It emerges out from the record that the assessee has incurred a sum of Rs. 22,50,000 for repair, renovation and upgradation of the facilities in the house properties. It has amortised the expenses in three years because lease agreement was for a period of three years and thereafter it was to be renewed. In this way, in the present assessment year, the assessee has claimed the deduction of Rs. 7,50,000. This deduction was disallowed to the assessee by the Assessing Officer on the ground that lease agreement is a bogus one. On appeal, the learned Commissioner of Income-tax (Appeals) has observed that rent paid for the residential accommodation of the managing director is an allowable expenditure. He estimated the reasonable rent at Rs. 50,000 and disallowed the balance, i.e., nine lakhs of rupees has been disallowed. With regard to Rs. 7,50,000, the learned Commissioner of Income-tax (Appeals) has observed that this amount could be allowed in the year in whi....
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....ing director. Thus, taking into consideration the overall evidence on record, we set aside the order of the learned Commissioner of Income-tax (Appeals). We direct the Assessing Officer to allow payment of rent to the extent of Rs. 20,000 per month for the accommodation taken on rent for Shri Sandeep Kohli, the balance has to be disallowed. The estimation of this rent on the basis of the original rent agreement between the landowner and Hotel Mezbaan would take care of all other notional rent computed by the Assessing Officer on the basis of interest-free deposits. In brief, against the claim of any rent made by the assessee for the residence provided to Mr. Sandeep Kohli, only a sum of Rs. 2,40,000 would be allowed. There will not be any disallowance on account of notional rent worked out on the basis of interest-free security. The Assessing Officer shall carry out this exercise. As far as the rent claimed in respect of the residence of Shri Ajay Bansal, we remit this issue to the file of the Assessing Officer for readjudication because he has not worked out fair rent this property can fetch, which can be allowed to the assessee. As far as the disallowance of Rs. 7,50,000 is conce....
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.... the rival contentions and gone through the record carefully. Out of the total expenses, a sum of Rs. 3,52,456, pertains to gratuity which according to the assessee was allowable as per section 43B read with section 40A(7) of the Act. The Assessing Officer after verification of this aspect allowed this claim. As far as the proposition of law, contended by the assessee that if the liability to pay has been crystallised during the accounting year relevant to this assessment year then the expenses are allowable is concerned, we do not have any dispute. Our difficulty is that the assessee failed to show crystallisation of the liability to pay in the present accounting year. Its accounts are complicated. A special auditor has been appointed who recommends for disallowance of the expenditure. The Assessing Officer has given fair opportunity to the assessee. Before us, it is just merely harping upon the proposition of law instead of buttressing it on facts, therefore, we do not find any force in this ground of appeal, it is rejected. In ground No. 6, grievance of the Revenue is that the learned Commissioner of Income-tax (Appeals) has erred in upholding the disallowance of Rs. 1,64,999....
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....he name of Tricon Restaurant India P. Ltd. It has some ledger print. This bill is for a sum of Rs. 7,194. They are similar type of bills for different requirements. Taking into consideration the findings of the learned Commissioner of Income-tax (Appeals), we do not see any reason to interfere in it. The ground of appeal raised by the assessee as well as the Revenue is rejected. Ground No. 7 : In this ground of appeal, grievance of the assessee is that the learned Commissioner of Income-tax (Appeals) has erred in confirming the addition of Rs. 3,30,474. The brief facts of the case are that the special auditor has quantified certain expenses which are prepaid in nature. According to the special audit report, the assessee had incurred certain expenses whose benefit will not be available in the present assessment year rather it will be available in the next assessment year. The Assessing Officer has disallowed those expenses on the ground that these are prepaid expenses. Appeal to the learned Commissioner of Income-tax (Appeals) did not bring any relief to the assessee. The assessee has pleaded that amounts paid were in pursuant to annual maintenance contracts. Once the am....
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....d a software for Pizza Hut Call Centre. According to the assessee, it has paid internet charges and other charges for repair of computers. All these expenses are of revenue in nature. Assessee has referred the decision of the Special Bench of the Income-tax Appellate Tribunal in the case of Amway India Enterprises v. Deputy CIT reported in [2008] 301 ITR (AT) 1 (Delhi) and contended that if functional tests are applied to the facts of the present case then these expenses would be allowed to the assessee as revenue expenses. On due consideration of the facts and circumstances, we are of the view that the learned Commissioner of Income-tax (Appeals) has allowed depreciation to the assessee on these expenses. The assessment year involved herein is 2002-03. The amount involved is not a substantial amount in comparison to the financial status of the assessee. The decision of the Special Bench in the case of Amway India Enterprises [2008] 301 ITR (AT) 1 (Delhi) was not available with the Assessing Officer as well as the learned Commissioner of Income-tax (Appeals). The cost incurred on such repairs or development of software must have been recouped by the assessee in the shape of de....
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....ticed that assessee has made a general reply without proving how a meeting of employees carried out accompanying wives and relatives be treated as business. The cases relied upon by the assessee since framed upon different circumstances and different facts then that of the assessee, are clearly distinguishable thus cannot be relied upon. Thus from the reply furnished by the assessee, the following automatically arises : (a) That no evidence regarding nature of activity carried out at Goa. (b) Need and outcome of Goa visit. (c) Objectives of the programmes so carried out. (d) Proofs to show that the programmes as alleged and business meetings were carried out. (e) Extent of and active participation of family members accompanied by employees in such meetings. Thus in view of the above followings are inferred : (a) The meeting was not held for the business purposes. (b) The cases relied upon since referred to in a context where business meetings were held is therefore not applicable. (c) The expenditure thus incurred is the personal expenditure of the employees. The expenditure is thus unconnected and not incurred during the normal course of business, ther....
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....ved that they were incurred wholly and exclusively for the purpose of the business. This aspect, the assessee has miserably failed to prove. We have extracted above the findings of the Assessing Officer and how he has demonstrated that these expenses were not for the purposes of the business. The case law cited by the assessee are of no help unless it proved factually that expenses were incurred for the purpose of the business. Taking into consideration the findings recorded by the Assessing Officer (extracted supra), we do not find any merit in this ground of appeal. It is rejected. In the result, the appeal of the assessee is dismissed. I. T. A. No. 142/Del/2006 : Ground No. 1 is general in nature, hence does not require any adjudication. It is rejected. Grounds Nos. 2 and 3 are interconnected with grounds Nos. 4 to 7 of the Revenue's appeal in this assessment year. All these grounds read as under : "2. That on the facts and circumstances of the case and in law the learned Commissioner of Income-tax (Appeals) was not justified in upholding the disallowance of lease rent to an extent of Rs. 9 lakhs, paid on account of rent free accommodation provided to the managing....
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....n the assessment order under the head "Personal expenditure". This ground is interconnected with ground No. 9 of the Revenue's appeal wherein the Revenue is impugning the partial deletion of the disallowance. With the assistance of the learned representatives, we have gone through the record carefully. It revealed that a sum of Rs. 33,460 was incurred towards the fee of Mr. Rajiv Kumar who pursued MBA course. The assessee failed to bring any policy decision arrived at by the management for reimbursing the fee incurred on education. The fee was paid because of the personal influence of the employee and it was not incurred for any business purposes. The assessee failed to bring any material on the record to this effect. The learned Commissioner of Income-tax (Appeals) has rightly confirmed the disallowance. As far as the other amounts are concerned, we find that these relate to medical expenses of Mr. Sandeep Kohli who is a director and the expenses incurred on the uniforms of his driver. These expenses are to be termed as expenses relating to the day to day business of the assessee. Thus, the ground of appeal raised by the assessee as well as of the Revenue are rejected. ....
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..... 2, the Revenue has pleaded that the learned Commissioner of Income-tax (Appeals) has erred in deleting the addition of Rs.3,25,87,817 which was computed by the assessee as royalty to KFC International Inc. and Pizza Hut. This ground is analogous to ground No. 5 in the assessment year 2002-03. In that assessment year, a similar disallowance of Rs. 3,23,01,939 was made by the Assessing Officer. The learned Commissioner of Income-tax (Appeals) has deleted the disallowance and we have upheld the order of the learned Commissioner of Income-tax (Appeals). In view of our findings on ground No. 5 in the assessment year 2002-03, this ground of appeal is rejected. Ground No. 3 : In this ground of appeal, grievance of the Revenue is that the learned Commissioner of Income-tax (Appeals) has erred in deleting the disallowance of Rs. 3,16,08,889. This ground is similar to ground No. 6 raised by the Revenue in the assessment year 2002-03. In this ground, grievance of the Revenue is that the learned Commissioner of Income-tax (Appeals) has erred in allowing on its subsidiary concern, namely, YRMPL. The disallowance made by the Assessing Officer has been deleted by the learned Commissioner of ....
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....etion of charging of interest under section 234 on the strength of the hon'ble Delhi High Court's decision wherein it has been observed that interest under section 234D can be charged from the assessment year 2004-05 and not prior to that. Considering our findings in the assessment year 2002-03, this ground of appeal is rejected. In view of the above discussion, the appeal of the Revenue is partly allowed for statistical purposes. I. T. A. No. 5122/Del/2010 : The present appeal is directed at the instance of the assessee against the order of the learned Dispute Resolution Penal passed under section 144C(5) of the Income-tax Act, 1961 on September 23, 2010 in the assessment year 2006-07. The grounds of appeals taken by the assessee are not in consonance with rule 8 of the Income-tax (Appellate Tribunal) Rules, they are descriptive and argumentative in nature. In ground No. 1, the assessee has taken 10 sub-grounds. In all these grounds, it has pleaded that the learned Revenue authorities have erred in making adjustment in the arm's length price disclosed by the assessee with regard to its international transaction and thereby erred in making an addition of Rs. 2,28,47,737....
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.... margin method. The assessee has identified nine comparable cases. The learned Transfer Pricing Officer rejected five comparable. He had done benchmarking by using remaining four comparable to arrive at the mean of 11.89 percent. as arm's length margin. The learned Transfer Pricing Officer rejected the application of multiyear data. He used current year data. In this way, an adjustment of Rs. 2,28,47,737 has been proposed by the Transfer Pricing Officer which has been incorporated in the draft assessment order by the Assessing Officer. The draft assessment order was forwarded to the assessee on December 16, 2009 which was received by the assessee on the same day. It has filed objection before the Dispute Resolution Panel in time. The learned Dispute Resolution Panel has considered the objections of the assessee but did not concur with them. Before us, learned counsel for the assessee reiterated the objections of the assessee. His main thrust of arguments was that the learned Transfer Pricing Officer has excluded the loss making companies from the comparables. He pointed out that the assessee itself had applied filter of persistent loss making companies to eliminate those compani....
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....sp; 3.29 per cent. Technical consultancy in the area of turnkey execution, project monitoring, quality assurance and inspection, third party quality inspection India Tourism Dev. Corpn. Ltd. Reject 3.38 per cent. Services in relation to organising international events. Similar to co-ordination activities of the assessee. In House Productions Ltd. Reject -5.62 per cent. Healthcare division which provides access to information, relating to healthcare to healthcare institutions. He also appraised us as to how the comparables shown by the assessee are comparables. On the other hand, the learned Departmental representative relied upon the order of the learned Dispute Resolution Panel. He pointed out that the first objection of the assessee before the learned Dispute Resolution Panel was that learned Transfer Pricing Officer has recommended adjustment in the arm's length price of international transaction by using current year data, according to the assessee, multiple year data ought to have been used. He pointed out that the learned Dispute Resolution Panel has dealt with this proposit....
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.... in order to identify companies that could be considered as comparable to Yum! Restaurants (India) P. Ltd., the assessee has used two database which contain commercial information. These database are "Prowess" and "Capitaline plus". The prowess has been up dated up to September 9, 2006 when it was used by the assessee. It is a database compiled and managed by the centre for monitoring Indian economy. Similarly, capitaline plus was updated until September 8, 2006. This database has been compiled and managed by capital market publisher. Both these database contain financial information of more than ten thousand Indian companies. These database contains business, profile, annual reports, shareholding pattern and names of subsidiaries/joint ventures of listed and major unlisted public companies. The assessee has used different key words for carving out comparable cases. At annexure 2 of its analysis, it has identified 342 companies on prowess, 617 companies on capitaline. There are 90 companies which are common and assessee has identified one additional company. After application of filter, it has rejected 861 companies and carved out 9 comparable as noticed by us in paragraph 84.....
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....tic with ratios will be rendered meaningless and unnecessary. The learned Dispute Resolution Panel concurred with this reasoning of the Transfer Pricing Officer. We find from annexure 2 of the assessee's analysis available on page 188 of the paper book IA for the assessment year 2006-07 that the assessee itself has applied a filter of persistent operative losses. It has excluded three companies out of total 861 on the basis of this filter, then what is the basis for inclusion of the loss making companies. The learned Transfer Pricing Officer has examined their financial result by applying other tools, before exclusion from comparable. We have duly considered the other issues also agitated before the learned Dispute Resolution Panel though those issues have not specifically been agitated before us, but we do not find any error in the order of the learned Dispute Resolution Panel on those issues. The learned Transfer Pricing Officer has considered all the objections of the assessee in selecting the comparable and thereafter find out four comparables. After going through the order of the learned Transfer Pricing Officer as well as of the learned Dispute Resolution Panel, we do not ....
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.... disallowed by the Assessing Officer to the assessee but allowed by the learned Commissioner of Income-tax (Appeals). We have upheld the order of the learned Commissioner of Income-tax (Appeals). There is no disparity on facts hence the learned Dispute Resolution Panel ought to have not upheld the draft proposal made by the Assessing Officer on this issue. The learned Dispute Resolution Panel should have taken into consideration the findings of the learned Commissioner of Income-tax (Appeals) in the assessment years 2002-03 and 2003-04. Respectfully following our discussion in those assessment years, we allow this ground of appeal and delete the disallowance. Ground No. 4 : In this ground of appeal, grievance of the assessee is that the learned Dispute Resolution Panel has erred in making a hypothetical disallowance of the administrative expenses of Rs. 8,97,22,346. The facts and circumstances of this ground are similar to the issue agitated by the Revenue in ground No. 6 of its appeal for the assessment year 2002-03. The assessee had a 100 per cent. subsidiary, namely, YRMPL who was taking care of advertisement, marketing and promotional activities. It is also functioning fr....
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....Mezbaan Hoteliers are relatives to Mr.Sandeep Kohli who is the executive director in the assessee's company. In this year, the assessee-company has paid a rent of Rs. 27,12,000 to M/s. Mezbaan Hotelier. In the assessment years 2002-03 and 2003-04, we have upheld the grant of deduction to the extent of Rs. 2,40,000 which is equivalent to the rent paid by M/s. Mezbaan Hotel. This is the assessment year 2006-07. The facts, how much rent was paid by M/s. Mezbaan Hotelier to its landlord is not available on the record. It is not ascertainable whether any enhancement of rent was made by the landlord against M/s. Mezbaan Hotelier. The learned Dispute Resolution Panel has allowed the deduction of rent paid by the assessee in the capacity of a sub-tenant at Rs. 2,40,000 only. We have observed in the assessment year 2002-03 that tenancy agreement as well as sub-tenancy agreement were executed on the same day and there cannot be any difference in rent value at this magnitude. Keeping in view our discussion, in the assessment year 2002-03, we modify the order of the learned Dispute Resolution Panel and direct the Assessing Officer to grant a deduction of rent payment to the assessee equivalent....
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....nue's appeal, we allow this ground of appeal of the assessee and delete the disallowance. Ground No. 10 : The grievance of the assessee is that the learned Dispute Resolution Panel has erred in disallowing the software expenses amounting to Rs.1,33,000 by holding them to be of capital nature. The assessee has pleaded that these expenses have not resulted in the creation of any capital assets. These expenses pertain to purchase software of the self-consultancy charges and maintenance charges. According to it, the learned Dispute Resolution Panel ought to have examined the case of the assessee within the right of the Special Bench's decision of the Income-tax Appellate Tribunal rendered in the case of Amway India Enterprises v. Deputy CIT reported in [2008] 301 ITR (AT) 1 (Delhi). It has also relied upon a number of other decisions. On the other hand, the learned Departmental representative has relied upon the order of the learned Dispute Resolution Panel. Similar expenses were incurred by the assessee in the assessment year 2002-03. We would have remitted the issue to the file of the learned Revenue authorities below for readjudication in the light of the Special Bench's de....
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....a capital expenditure. We allow this ground of appeal and delete the addition. Ground No. 12 : In this ground of appeal, grievance of the assessee is that the learned Dispute Resolution Panel has erred in confirming the treatment of interest income as income from other sources. It emerges out from the record that the assessee has a surplus fund which was invested by it. The learned Dispute Resolution Panel on the strength of the hon'ble Supreme Court's decision rendered in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT [1997] 227 ITR 172 (SC) had held that such interest income is to be assessed under section 56 of the Act. The income is not a part of the assessee's business activities. Learned counsel for the assessee submitted that interest income has to be assessed as business income because in the past, the Assessing Officer has assessed such income as business income except in the assessment year 2005-06. He relied upon the decision of the hon'ble Mumbai High Court in the cases of CIT v. Punit Commercial Ltd. reported in [2000] 245 ITR 550 (Bom) and CIT v. Paramount Premises P. Ltd. [1991] 190 ITR 259 (Bom). The learned Departmental representative on t....
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....ce of the services. If at all, it was liable to be reimbursement but not done then it should be treated as a commercial loss and should be allowed to the assessee. He relied upon the decision of the hon'ble Supreme Court in the case of Badridas Daga v. CIT reported in [1958] 34 ITR 10 (SC). He also submitted that expenses of Rs.86,89,626 is not covered by the service agreement. This was incurred as a part of routine business operation, hence it could have not been disallowed by the Assessing Officer. He relied upon the decision of the hon'ble Supreme Court in the case of CIT v. Panipat Woollen and General Mills Co. Ltd. reported in [1976] 103 ITR 66 (SC). The learned Departmental representative on the other hand relied upon the order of the learned Dispute Resolution Panel as well as of the Assessing Officer. We have duly considered the rival contentions and gone through the record carefully. The Assessing Officer has made a reference to clause 4 of the service agreement and observed that the assessee would receive a fixed service fee along with reimbursement of travel expenses incurred in performance of its duties. The assessee is earning its income from service agreement ....