TaxTMI 
TaxTMI 
2012 (11) TMI 989
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.... CIT (A) erred in disregarding the ITAT order for the earlier years in the appellant's own case. 5. (a) The learned CIT (A) erred in confirming the addition of Rs. 25,13,808/- under section 92CA(3). (b) The learned CIT (A) erred in holding that there was no requirement to bring material on record before forming an opinion and before making a reference to the TPO that the arms length price was not correct". 2. We have heard the learned Counsel and the learned DR in detail and their arguments are considered wherever necessary. 3. Ground No.1 is with reference to treating the expenditure claimed as repairs as capital in nature. 4. The facts of the case are that during the year under consideration assessee had incurred expenditure of Rs. 95,54,601/- on repairs and maintenance of various residential flats and office buildings owned by it. During the assessment proceedings AO examined the nature of these expenses. After examination, he came to the conclusion that the expenses of Rs. 33,12,482/- were of capital nature. The details of the expenses treated by AO as capital expenditure have been given at page 3 and 4 of the assessment order. 5. Before the CIT (....
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....tion as per the rules by capitalizing this expenditure to the assets. Balance of the expenditure in our view is revenue in nature as this is for maintenance/repairs of the existing assets. The findings of the ITAT in earlier years on the same issue are equally applicable to the year which are as under: "9.7 We further find identical issue had come up before the Tribunal in assessee's own case in the preceding years. We find the Tribunal vide ITA Nos.2041/Mum /98, 2042/Mum/98 and 3256/Mum/99 for AYs 1993-94 to 1995-96respectively vide order dated 19.1.2005 at Paras 12 & 13 of the order has decided the issue in favour of the assessee by holding as under: "12 We have heard the rival submissions and considered the facts and materials on record including the decisions cited before us by both the parties, even though, we are mentioning only those decisions which are relevant to our finding, which we are giving in the succeeding sentences. As regards, the expenses incurred on leased property, the Hon'ble Supreme Court in the case of CIT v. Madras Auto Service P Ltd., cited supra has held that by spending money on constructing the new buildings on the leased premises, the assessee di....
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....get any ownership of the building and therefore, by spending the money, the assessee did not acquire any capital asset as held by the Hon'ble Supreme Court in the case of Madras Auto Services P Ltd (supra) from the business point of view, therefore, the assessee got the benefit of reduced rent and the assessee obtained business advantage. Therefore, the expenditure is to be treated as revenue expenditure by applying the ratio decidendi in the case of Madras Auto Services P Ltd (supra).When the Hon'ble Supreme Court has held so, in our view, the decision of the Tribunal in the case of M/s Vams Fort Motor Pvt. Ltd may not advance any support to the case of the revenue. The Hon'ble Bombay High Court in the case of CIT v. Hede Consultancy P Ltd and another, on similar facts held that since assets created by the said amounts did not belong to the assessee but the assessee got the business advantage of using modern business premises on low rent, thus saving considerable revenue expenditure for a considerably long period, the Tribunal was perfectly justified in coming to the conclusion that the expenditure should be looked upon as revenue expenditure. In this case also, the assessee had s....
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.....3 is regarding disallowance under section 14A which was not pressed, hence treated as withdrawn. 11. Ground No.4 pertain to the issue of taxing an amount of Rs. 9,81,80,823/- in respect of unclaimed liability in addition to the amount of Rs. 2,99,14,525/- offered by assessee in the return of income. 12. The facts of the case are that in Schedule 13 to the Profit & Loss A/c assessee had shown income on account of 'unclaimed liabilities no longer required' at Rs. 4,67,40,197/-. The said amount consisted of the following: Rates & sizes written back Rs. 2,99,14,525 Price Water Co Payable written back Rs. 22,98,496 Indian client money written back Rs. 19,00,000 Sundry balances of various job written back Rs. 43,53,000 Out of date cheques written back Rs. 9,90,775 Sundry credit balances of various clients Rs. 72,83,402 Rs. 4,67,40,198 AO further found that the 'Rates & Sizes account' out of which an amount of Rs. 2,99,14,525/- was written back, appeared in assessee's books as under: Opening balance (7,83,32,994) Add: Credited during year (additions during the year) (3,24,51,841) Less: Cred....
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....nts of the clients and suppliers. Out of the said amount, an amount of Rs. 27.00 lakhs approx. has been credited to the accounts of clients and suppliers. According to assessee, AO has not given any convincing reason for not accepting the method followed by assessee. 15. The CIT (A) considered the issue and upheld the addition by stating as under:- "6.2 I have carefully considered the submissions made by the appellant. It is the claim of the appellant that the amount of Rs. 7,81,80,823/- represents the amount either excess charged from the clients or less paid to the media in respect of advertisements. It is its claim that the said liability has been kept alive since the clients or the media might make claim of the amount excess charged or lower paid to them. To understand the exact nature of the liability, the figures appearing in the 'rates and sizes' account for various years are reproduced as under: A.Y 2001-02 A.Y 2002-03 AY 2003-04 A.Y 2004-05 A.Y 2005-06 Opening balance 56,774,935 -78,443,994 -78,180,823 -49,943,146 -32,433,667 Add: Credited during the year 48,377,561 -32,451,....
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....pute the profit. " The appellant has written back the unclaimed liability in its books and offered the same to tax after 2 years from the end of the year in which the liability was created. It is a settled legal position that accounting entries do not determine the character of the receipt. If the income has accrued in a year, it has to be taxed in that year only. Taxability cannot be postponed on the basis of entries made in the books of accounts. Since the liability amounting to Rs. 7,81,80,823/- outstanding in the books is not the real liability, AO was justified in bringing the same to tax in assessment year 2002-03 (Addition confirmed - Rs. 7,81,80,823/-). Accordingly the action of AO is upheld. Therefore, the fifth ground is rejected" 16. The learned Counsel objected to the above order on three reasons. The first one is that the opening balance for this assessment year is Rs. 7,83,32,994/- whereas the closing balance is Rs. 7,81,80,823/- which indicates that the entire closing balance which was brought to tax during this year does not pertain to this assessment year at all. The second reason is that assessee is consistently following the same method of accounting for it....
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....year which may have be to be excluded if AO's opinion is to be accepted) and amount of Rs. 26,89,487/- credited to the clients accounts. Since whatever has accrued during the year has already been offered/adjusted, on the same principles as laid down by the CIT (A), no further amount can be brought to tax. In addition assessee is consistently following the same accounting principles and there is no escapement of income, nor there is any postponement of tax liability. In fact recognizing or not recognizing of a particular amount as income depends on the contract and work done. As rightly pointed out by assessee, these disputes arise because of the size of advertisement placed and short or excess charging than what was due. As and when the parties seek the amount which cannot be recognized as income, assessee is refunding the amount and once client does not seek any adjustment the same is accepted as income of the year after the end of three years limitation period as per assessee's own accounting method. In view of this, we do not see any reason for supporting the action of AO in bringing to tax the entire credit in the account as income of the year without examining the principles ....
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.... minutes of the Eleventh meeting of the Executive Committee of Advertising Agencies Association of India held on 03.08.98 which deals with the remuneration policy of the association with regard to advertising services. It provides that, for the services rendered in the areas of media buying and media release, the agency will earn 2.5% media commission on releases made by it for brands which are handled by other advertising agencies of the advertisers. The other advertising agency will earn 12.5% commission. The TPO asked assessee to submit the details of foreign as well as Indian clients to whom services of media buying were rendered by the appellant. It was submitted by assessee that similar services were not rendered to any foreign client. However, it was stated that such services were rendered to Indian clients namely Aptech Ltd., Pantaloon Retail India Ltd, Siemens Telecom Ltd, Ever Ready Industries (India)) Ltd etc. Copies of agreements with these parties were filed by assessee before the TPO. Assessee had adopted the CUP (Comparable Uncontrolled Price) method for determining the arm's length price. The TPO compared the commission of 3% received by assessee from IM Hamburg wit....
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....its inability in producing any document other than the invoice relating to Rs. 9,60,703/-. In absence of any document evidencing receipt of any services, the TPO held that no services were rendered by Initiative Media Paris to assessee and accordingly he compute the ALP of the transaction at Nil. The difference between the transaction value and its ALP computed at Rs. 9,60,703/- was added by AO to the income of assessee. 22. Before the CIT (A) assessee objected to the action of the TPO and that of AO in making addition of Rs. 25,13,808/- under section 92CA(3) on the following grounds: (i) AO has to have material on record on the basis of which he comes to an opinion that the matter has to be referred to the TPO. No such material has been brought on record by AO and accordingly the reference to the TPO was not valid. (ii) A show cause notice is required to be issued by AO to assessee before a matter can be referred to the TPO. No such show cause notice was issued by AO to assessee and hence the order passed by the TPO under section 92CA(3) was not in order. (iii) Before referring the matter to TPO, AO has to obtain approval from the CIT. No material has....
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....reference under section 92CA is made to the TPO to find the arms length price of the international transaction. It is not that only non-bonafide transactions can be referred to the TPO for finding out the arms length price. The only requirement in section 92CA(1) is that AO should get the previous approval of the Commissioner before making reference to the TPO. In the instant case, AO obtained the approval of the CIT 3 Mumbai vide letter No.CIT III/Scru/03-04 dated 25.09.2003. Therefore, the objections taken by the appellant at Sr.No.(1) to (iii) above are rejected. 7.2.1 In this case, the appellant had rendered services of media buying to I M Hamburg, Germany. No such services were rendered to any other foreign enterprise. However, the appellant had rendered similar services to some of the Indian clients. The nature of services provided by the appellant to I M Hamburg and the Indian clients was the same. Therefore, both the transactions were comparable. The transactions entered into by the appellant with I M Hamburg was a controlled transaction and the transactions entered into by it with Indian Enterprises were uncontrolled. The appellant had adopted the CUP method for computi....
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....ment. He referred to the submissions made before the TPO reproduced in page 8 of the order vide Para 4.1.5 to submit that assessee is receiving its monthly fixed fee of Rs. 1.45 lakhs. This amount could not be converted to percentage commission as the commission was not involved in the transactions with the Eveready Industries as the services are rendered on fixed fee basis. It was his submission that the adoption of the commission of 7% is not correct and that should be excluded. If the same is excluded the average of the above commission comes to 2.65% whereas assessee has earned the commission at 3%. Therefore, there is no need to adjust any amount as ALP on this issue. 25. The learned DR however, supported the orders of the TPO and the CIT to submit that the average rate of commission is to be fixed at 3.375%. 26. We have considered this issue. As seen from the order of the TPO as well as the orders of the CIT (A), there is no dispute with reference to the fixed monthly fee received from Eveready Industries Ltd. Assessee is not charging any commission as it has entered into fixed fees arrangement with Eveready Industries Ltd. The nature of the service and the fees being c....
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....ould not be considered as an international transaction exclusively in the case of AE as it is not a policy to provide to any credit to any client specifically. Moreover, assessee, with protest, has submitted that the rate of interest that would be charged at 18% was not the market rate and further being a foreign company the rate of interest can be considered at LIBOR rate or +2% to LIBOR rate as is being done for loans and advances given by foreign company. This aspect was not at all considered by the TPO or by the CIT (A). As assessee as an alternative contention submitted that the interest can be worked out at 7% as per the European standard which would come to Rs. 5,14,357/-. Without discussing this issue at all and without considering the fact that assessee has not charged any interest to any client, in our view both the TPO as well as the CIT (A) wrongly considered the issue of making available credit to the foreign company. We are not in agreement with the action of AO on the facts of this case. We agree with assessee's contentions that assessee is not charging any interest to any client whether Indian or foreign, nor there is any credit extended to the foreign company in th....