TaxTMI 
TaxTMI 
2015 (3) TMI 111
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..... 3. The learned AO and learned DRP erred in law and on facts in disallowing additional depreciation u/s 32(1)(iia) on some of the items of fixed assets (plant and machinery) amounting to Rs. 2,778,806/-. 4. The learned AO and learned DRP erred in law and on facts in treating "Discount on pre-payment of Sales Tax Deferral liability" of Rs. 37,362,364/- as remission / cessation of liability, chargeable to tax u/s 41(1) of the ITA, 1961. 5. The learned AO and learned DRP erred in law and on facts in recalculating the BOOK PROFIT of the assessee u/s 115JB by adding following items of (a) Disallowance of Sec 14A Rs.23,40,102/- (b) Provision for bad & doubtful debts Rs.1,66,83,405/- (c) Provision for Warranty Rs.82,80,000/- (d) Provision for Diminution of Assets Rs.18,41,037/- 6. The appellant craves leaves to add, modify, alter, amend or withdraw all or any of the Grounds of Appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing. 3. The brief facts of the case are that, the assessee company was engaged in the business of manufacture of polymer en....
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....ctions with its AE under the provisions of section 92B of the Act. Sr No. Nature of Transactions Amount of Transactions Method Adopted 1. Disbursement of loan 7,66,740 CUP 2. Repayment of loan 2,79,10,000 CUP 3. Interest receivable 2,91,82,060 CUP 4. Part conversion of capital into loan 57,24,00,000 CUP Total 63,02,58,800 5. The TPO issued a show cause notice to the assessee as no TP Study report had been submitted by the assessee. Further, transaction had taken place with the AE, under which, part of the capital had been converted into loan and the source of such capital was a loan obtained from Citi Bank. Further, the Indian banks were lending the money at the BPLR rates prevailing in India. However, the interest charged by assessee to AE on such loan was 4.75%. The assessee was show caused as to why interest amount could not be charged to AE at the Indian BPLR rates and accordingly, the TP adjustment be worked out. Since the assessee failed to furnish any reply to the said show cause notice, the TPO proceeded to work out the addition on the basis of the material available on ....
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.... borrower exists and all other relevant parameters. These factors do have their bearing on the risk perception on the loans so advanced by the banks. It is the totalities of these aspects and factors which are determinative of the lending rate by the banks and the BPLR thus serves as guidance for the lending rate. The objectivity and applicability of BPLR can be taken as topnotch coupled with the factors associated with the borrower and the surrounding economic circumstances." 7. The TPO was of the view that BPLR or the lending rates would be the correct indicator factor for the determination of the charge of interest on advance to the subsidiary because the assessee was not a banker. The TPO further observed that it was a fact of the case that the loan has been advanced by the assessee to its AE and for having advanced such loan, interest has been provided in the books of account. It is this interest rate, which has been agreed to be charged by the assessee, was to be benchmarked to determine its Arm's Length Price. As per TPO, the loan has been given to company which has no financial legs to run on and further, on its own it could not have arranged for the funds it require....
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....spute Resolution Penal (in short DRP) upheld the proposition of the TPO and consequently, the Assessing Officer made an addition of Rs. 4,41,74,661/- being the Arm's Length Price adjustment of the international transactions. 9. The assessee is in appeal against the said adjustment made by the TPO and raised the issue vide grounds of appeal Nos.1 and 2. The learned Authorized Representative for the assessee pointed out that investment was made by the assessee to its wholly owned company Netherland to buy stake in Italian company. The investment made by the assessee company was twofold; i.e. in the shares of the Netherland's company and also the loan advanced to the said company for the first two years, loan continued at interest rate of 4.75%. As per the TPO, the assessee should have applied BPLR rate. However, since the assessee was making international lending, charged the international rates and not domestic rates. The borrowings for the said investments were made from Citi Bank which in turn, charged interest. The assessee claims that substantive part of the deal was in capital investment in wholly owned company, in turn acquisition of company in Italy. The loan received ....
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....s with its associated enterprises:- Sr No. Nature of Transactions Amount of Transactions Method Adopted 1. Disbursement of loan 7,66,740 CUP 2. Repayment of loan 2,79,10,000 CUP 3. Interest receivable 2,91,82,060 CUP 4. Part conversion of capital into loan 57,24,00,000 CUP Total 63,02,58,800 12. The assessee had partly converted its capital invested in the associated enterprises into loan transactions and the source of the said capital was loan obtained from Citi bank. The TPO noted that the assessee had diverted part of the loan raised from Citi bank to its associated enterprises, for raising the loan charge had been created against the assets of the assessee company. As per TPO, the Indian banks were lending the money at BPLR rates prevailing in India on the security of the assets of the company, whereas the assessee had charged interest rate of 4.75% to its associated enterprises on such loan disbursement. 13. During the year under consideration, interest of Rs. 2,91,82,060/- had accrued as interest on loan granted to its associated enterprises. The assessee had granted lo....
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....an BPLR was neither ascertainable nor determinable, the TPO considered it suitable to benchmark the international transactions with benchmark of interest taken as BPLR. Accordingly, rate of 12.25% i.e. the BPLR of the SBI was taken as benchmark rate and the differential quantum of interest on the loan advanced to the subsidiaries, amounting to Rs. 4,41,74,661/- was added to the value of international transactions to arrive at the arm's length price of the international transactions. The TPO dis-regarded the LIBOR+ rate of 6.75% as not the benchmark applied by the assessee as according to that rate, the interest should have been charged at Rs. 4,03,52,970/- whereas it had only charged Rs. 2,86,27,089/-. In view thereof, an adjustment of Rs. 4,41,74,661/- was made in the hands of the assessee. The said order of TPO has been upheld by DRP. 15. In the facts of the present case, the assessee had advanced money in the form of share application money which were later converted into loan on the advice of European Consultants. On such advance made to its associated enterprises, the assessee had charged interest @ 4.75%. While benchmarking the international transactions what has to be....
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....s & Holdings Limited Vs. ACIT, Chennai (2012) 26 taxmann.com 96 (Chennai) had held as under:- "The assessee had given the loan to the associated enterprises in US dollars, and assessee was also receiving interest from the associated enterprises in Indian rupees. Once the transaction between the assessee and the associated enterprises was in foreign currency and the transaction was an international transactions, then the transaction would have to be looked upon the applying the commercial principles in regard to international transactions. If that was so, then the domestic prime lending the rate would have no applicability and the international rate fixed being LIBOR would come into play. In the circumstances, the view that LIBOR rate had to be considered while determining the arm's length price interest rate in respect of the transaction between the assessee and the associated enterprises was to be upheld. As it was noticed that the average of the LIBOR rate for 1-4-2005 to 31-3-2006 is 4.42 per cent and the assessee had charged interest at 6 per cent which was higher than the LIBOR rate, no addition on this account was liable to be made in the hands of the assessee. In the ....
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....nder section 32(1)(ii)(a) of the Act on some of the items of fixed assets amounting to Rs. 27,78,806/-. 21. The Assessing Officer on the examination of the books of account and depreciation chart, noted that the assessee had claimed excess depreciation under the block of Plant & Machinery and also claimed additional depreciation. The Assessing Officer found that the nature of the assets did not fall under the block Plant & Machinery, but pertained to the block of Furniture & Fixtures, on which the depreciation was allowable on lower rates compared to the rates on which the depreciation was allowable on Plant & Machinery. Further, additional depreciation was not allowable on the said Furniture & Fixture items. The assessee was show caused to explain its claim and in response, the assessee contended that they were part of the Plant & Machinery. The Assessing Officer at pages 4 and 5 of the assessment order considered each of the items and held that since the items were not covered under Plant & Machinery, no additional depreciation was allowable on the same. The DRP upheld the order of Assessing Officer, against which the assessee is in appeal. 22. The learned Authorized Repres....
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.... 7 Freeze / Refrige rator 16640 12267 3415 4554 2277 1138 4554 8 Handicam 111416 66991 21736 28982 14491 7245 28982 9 Projector 311130 0 46670 62226 31113 15556 62226 10 Scanner 3348 0 502 670 335 167 670 11 Industrial Fan 59968 0 8995 11994 5997 2998 11994 12 UPS Inverter 39257 584724 49743 66324 33162 16581 66324 13 Attendence Card Reader 315082 512545 85703 114271 57135 28568 114271 14 EPBX System 267363 0 40104 53473 26736 13368 53473 15 Energy Saver 0 107767 8083 10777 5388 2694 10777 Total 1667283 2223050 1111522 555756 2223050 26. The first item was the Racks which are utilized for keeping any type of material or goods and cannot form part of the Plant & Machinery. We are of the view that the Racks cannot be considered as part of block of Plant & Machinery and no additional depreciation is allowable on the same. Further, depreciation @ 10% is to be allowed on such Racks b....
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.... Rs. 3.73 crores on account of surplus of premature payment of sales tax deferral loan and subsequently, the same was reduced from the total income in the computation of income filed by the assessee. The Assessing Officer was of the view that the said surplus is taxable under section 41(1)(a) of the Act. The assessee had placed reliance on the ratio laid down by Special Bench of Mumbai Tribunal in Sulzer India Ltd. Vs. JCIT (2010) 42 SOT 457 (Mumbai). The Assessing Officer noted that before the Special Bench, the question was modified during the course of hearing and it was held that there was no remission of any liability on the difference between payment of net percent value against the future liability of credit by the assessee and such payment of net percent value of future liability, in our opinion, classified as remission or cessation of liability so as to attract the provisions of section 41(1) of the Act. The Assessing Officer disallowed the claim of the assessee, which was upheld by the DRP. 33. The learned Authorized Representative for the assessee pointed out that the issue was squarely covered by the ratio laid down in Sulzer India Ltd. Vs. JCIT (2010) 42 SOT 457 (Mu....
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....: (i) obtained any amount in respect of such loss and expenditure, or (ii) obtained any benefit in respect of such a trading liabilities by way of remission or cessation thereof. In the instant case, the sales tax collected by the assessee during the years 1989-90 to 2001-02 amounting to Rs. 752.01 lakhs was treated by the State Government as a loan liability payable after 12 years in six annual/equal installments. Subsequently, pursuant to the amendment made to the fourth proviso to section 38(4) of the Bombay Sales Tax Act, 1959 which provides that where an entitlement certificate has been granted to the eligible unit for availing of the incentives by way of deferment of sales tax, etc., such eligible unit may, in respect of the periods during which the said certificate is valid, at its option, prematurely pay in place of the amount of tax deferred by it an amount equal to the net present value of the deferred tax as may be prescribed and on making such payments, in the public interest, the deferred tax shall be deemed to have been paid. In the instant case the assessee had opted for the offer of SICOM, an implementing agency of the State Government and repaid an amount of Rs. 33....
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....under section 115JB of the Act. 41. We find similar issue arose before Chandigarh Bench of the Tribunal in Nahar Industrial Enterprises Ltd., Vs. DCIT in ITA No.897/Chd/2012 relating to assessment year 2008-09, vide order dated 10.09.2014 and it was held as under:- "6. We have heard the rival contentions and perused the record. We find that recomputation of book profits under section 115JB of the Act arose before the Tribunal in ACIT Vs. M/s Nahar Capital & Financial Services Ltd. and the Tribunal in ITA No.870/Chd/2013 relating to assessment year 2010-11 vide order dated 6.6.2014 held as under: "5. We have heard the rival contentions and perused the record. The issue arising in the present appeal is in relation to computation of book profits under section 115JB. The Assessing Officer while computing the book profits had added back disallowance worked out under section 14A of the Act to the net profits of the business. The plea of the assessee in this regard was that the assessee itself had disallowed sum of Rs. 42,37,722/- on account of disallowance under section 14A of the Act under regular provisions and Rs. 32,86,397/- under section 115JB provision in its return of inc....