TaxTMI 
TaxTMI 
TaxTMI 
2014 (12) TMI 297
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....re and technical services. The return for the year was filed on 27.10.2005 declaring total income as Nil. The return was selected for scrutiny assessment and accordingly statutory notices were issued and served upon the assessee. During the course of assessment proceedings assessee was asked to explain the claim of interest debited in the Profit & Loss Account vis-a-vis section 43B of the Act. The AO noticed that the assessee has an outstanding loan of Rs. 23.34 crores. The loan was taken in earlier years from Global Trust Bank (now Oriental Bank of Commerce). The loan was taken sometime in 2001 and no fresh loans were taken during the year. The AO further notices that the assessee has paid total interest of Rs. 6.78 crores. It was claimed by the assessee that the entire interest is paid on monies borrowed for the purpose of business. Therefore there is no issue of disallowance of any part of interest paid on term loans. 4. On disallowance under section 43B of the Act, it was claimed that due to the arrangement with the Bank the interest has been paid in lieu of dividend. Therefore the interest paid is neither on account of loan nor on borrowings. The amount is paid on investment ....
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.... 8. Per contra the learned D.R. vehemently submitted that even if the liability is considered as interest the same is hit by the provisions of section 43B of the Act in as much as Global Trust Bank has been merged with Oriental Bank of Commerce and Oriental Bank Commerce is a scheduled bank. Therefore, provisions of section 43B of the Act clearly apply on the facts of the case. 9. We have considered the rival submission and carefully perused the orders of the lower authorities. It is an undisputed fact that the loan from Global Trust Bank was taken sometime in 2001 and since then the assessee has been debiting its Profit & Loss Account by the amount of interest payable on the borrowings. It is also an undisputed fact that in earlier years the liability has been considered and accepted as towards interest. For the first time the AO has changed the character of the liability from "interest" to "dividend" which is against the rule of consistency. The AO himself has observed that no fresh loans have been taken during the year under consideration. Therefore the AO cannot change the nature of liability during the year under consideration. However, at the same time we do not agree with t....
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....arking software development services and considering the availability of data TNMM should not be considered as the most appropriate method. The TPO provided an entire search process to the assessee and final set of comparable with the arithmetic mean of 27.31 percent. Assessee made a detailed submission before the TPO. After considering the submissions of the assessee the TPO came to the conclusion that the AE was performing more complex functions that the assessee. Therefore the AE could not be selected as tested party. The TPO rejected the CUP method applied by the assessee as according to him the CUP method applied by the assessee was without any internal comparables and external third party comparable. The TPO adopted TNMM as the most appropriate method. Out of the 19 comparables mentioned in the show cause notice issued by the TPO the following comparables were selected: - 1. Bodhtree Consulting Ltd. 2. Akshay Software Technologies Ltd. 3. Lanco Global Systems Ltd. 4. Exensys Software Solutions Ltd. 5. Sankhya Infotech Ltd. 6. Sasken Network Systems Ltd. 7. GebbsInfotech Ltd. 8. VJIL Consulting Ltd. 9. Fourt soft Ltd. 10. Thirdware Solutions Ltd. 12. The TPO finally....
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.... given thoughtful consideration to the findings of the lower authorities. We have also the benefit of the order of the Tribunal in assessee's own case for AY 2004-05 in ITA No. 4855/Mum/2009. The entire dispute boils down to the application of most appropriate method on the facts of the case. The assessee is insisting on CUP method whereas the TPO has adopted TNMM as the most appropriate method. On identical set of fact the Tribunal in ITA No. 4855/Mum/2009 has considered this issue qua ground No. 2 of that appeal. The order of the Tribunal reads as under: - "13. Ground No.2 taken by the department is as under: "On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in deleting the addition on account of Transfer Pricing adjustment made by the TPO without appreciating the facts of the case" 14. Since the assessee was having total international transactions with the Associated Enterprises of more than Rs. 5 crores, AO made reference to Transfer Pricing Officer u/s 92CA(1) for computation of Arm's Length Price (ALP) of the international transaction u/s 92C. Assessee filed a report u/s 92E in respect of international transaction entered into with the....
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.... to apply CUP method. He further submitted that the TPO did not provide any details and names of comparables to the assessee to arrive at arithmetic means at 9.92%. It was also submitted that the assessee had entered into the transactions with Associated Enterprises as well as non Associated Enterprises and TPO considered the entire sales in determining ALP of the assessee. Thus, TPO has made comparison at entity level instead of transactional level. Ld. AR during the course of hearing relied on the decisions of the Mumbai Bench of Tribunal in the case of DC1T V/s Ankit Diamonds (2011) 43 SOT 523 and DCIT V/s Starlite (2010) 40 SOT 421 (MUM.) and submitted that ALP of international transactional value has to be only at transaction level or at a level of a class of transaction. That law does not permit determination of ALP of international transaction, by comparing operating margins at entity levels, or by taking overall industry level averages. Ld. AR further submitted that details of data to apply internal CUP method were also furnished to AO and referred pages 81 to 84 of the paper book but AO did not accept the same. 19. In view of above, Id. Representatives of both parties sub....
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....as deduction under section 36(1)(vii) of the Act. Reliance was placed on the decision of the Hon'ble Supreme Court in the case of Vijaya Bank vs. CIT 323 ITR 166. 20. After considering the facts and the submissions the CIT(A) was convinced that the ratio laid down by the Hon'ble Supreme Court in the case of Vijaya Bank (supra) squarely apply to the facts of the case and deleted the addition made by the AO. 21. Aggrieved by this the Revenue is before us. The learned D.R. strongly submitted that the ratio of the decision of the Hon'ble Supreme Court is that each and every debtor's account should be closed by appropriate entries before claiming bad debt as per the provisions of section 36(1)(vii) of the Act. The learned D.R. explained the provisions of the relevant section and stated that the findings of the CIT(A) are erroneous. 22. Per contra the learned counsel for the assessee reiterated what has been submitted before the lower authorities. 23. We have carefully perused the orders of the authorities below. We have also considered the financial statements of the assessee for the year under consideration. We find that in Scheduled 18 under the head "other costs" the ....
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....ssee-bank to close the individual account of each debtor in its books or a mere reduction in the "loans and advances account" or debtors to the extent of the provision for bad and doubtful debt is sufficient ? 6. The first question is no more res integra. Recently, a Division Bench of this Court in the case of Southern Technologies Ltd. vs. Jt. CIT (2010) 228 CTR (SC) 440 : (2010) 34 DTR (SC) 11 : (2010) 320 ITR 577 (SC) [in which one of us (S.H. Kapadia, J.) was a party] had an occasion to deal with the first question and it has been answered, accordingly, in favour of the assessee vide para (25), which reads as under : "Prior to 1st April, 1989, the law, as it then stood, took the view that even in cases in which the assessee(s) makes only a provision in its accounts for bad debts and interest thereon and even though the amount is not actually written off by debiting the P&L a/c of the assessee and crediting the amount to the account of the debtor, the assessee was still entitled to deduction under s. 36(1)(vii). [See CIT vs. Jwala Prasad Tiwari (1953) 24 ITR 537 (Bom) and Vithaldas H. Dhanjibhai Bardanwala vs. CIT (1981) 21 CTR (Guj) 190 : (1981) 130 ITR 95 (Guj)]. Such state ....
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....Act by merely debiting the impugned bad debt to the P&L a/c and, therefore, the Parliament stepped in by way of Explanation to say that mere reduction of profits by debiting the amount to the P&L a/c per se would not constitute actual write off. To this extent, we agree with the contentions of Shri Bhattacharya. However, as stated by the Tribunal, in the present case, besides debiting the P&L a/c and creating a provision for bad and doubtful debt, the assessee-bank had correspondingly/simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans and advances/debtors on the asset side of the balance sheet and, consequently, at the end of the year, the figure in the loans and advances or the debtors on the asset side of the balance sheet was shown as net of the provision "for impugned bad debt". In the judgment of the Gujarat High Court in the case of Vithaldas H. Dhanjibhai Bardanwala (supra), a mere debit to the P&L a/c was sufficient to constitute actual write off whereas, after the Explanation, the assessee(s) is now required not only to debit the P&L a/c but simultaneously also reduce loans and advances or the debtors from the as....
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.... account if the AO has reasonable grounds to believe that assessee has claimed deduction, twice over. In fact, that exercise has been undertaken in subsequent years. There is also a flipside to the argument of the Department. Assessee has instituted recovery suits in Courts against its debtors. If individual accounts are to be closed, then the debtor/defendant in each of those suits would rely upon the bank statement and contend that no amount is due and payable in which event the suit would be dismissed. 9. Before concluding, we may refer to an argument advanced on behalf of the Department. According to the Department, it is necessary to square off each individual account failing which there is likelihood of escapement of income from assessment. According to the Department, in cases where a borrower's account is written off by debiting P&L a/c and by crediting loans and advances or debtors accounts on the asset side of the balance sheet, then, as and when in the subsequent years if the borrower repays the loan, the assessee will credit the repaid amount to the loans and advances account and not to the P&L a/c which would result in escapement of income from assessment. On the othe....