TaxTMI 
TaxTMI 
2015 (3) TMI 365
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....ri Lanka, Maldives, UAE, Kingdom of Saudi Arabia, Kuwait, Qatar, Oman, Afghanistan and Brazil. Micromax products portfolio includes over 60 models, ranging from dual SIM phones to QWERTY, touch-enabled smart feature phones and 3G Android smart phones. 2.1. The assessee company MMX India was incorporated on 29th March, 2000. The company was initially in the business of manufacturing fixed wireless terminals and phones. During the year ended 31st March,2009 the company began the business of trading of third party manufactured mobile phones under its brands namely 'Micromax' and 'Micromax Mobile'. MMX India has 3 tier distribution net work in India, which extends across 65 super distributers, 1500 micro distributors and over 100,000 retailers. The product includes mobile phones, data cards, accessories and spares and terminals. 2.2. A search and seizure operation u/s 132 of the Act was conducted in the Micromax group of cases on 10.2.2011. The assessee M/s Micromax India Ltd., is a Member of this group. The assessee filed its return of income on 30.09.2011 declaring total income of Rs. 299,42,85,775/-. A notice u/s 143(2) of the Act was issued to the assessee on 02.03.2012. 2....
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....59,085/-, as against the declared value of Rs. 1,41,92,634/- and an addition of Rs. 1,05,66,541/- was made. It was also observed that the assessee has extended the facility and benefit of standby letter of credit in favour of its Dubai AE. The ALP of the same was worked out at Rs. 1,22,39,100/-. Thus the total adjustment in respect of international transaction of Rs. 2,28,05,551/- was made. A number of issues were raised during the course of assessment, and in the draft assessment order dt. 14.11.2013 the AO proposed the following adjustments. (a) Income as declared Rs.2,99,42,85,775/- Add: As per TPO Rs. 2,28,05,551/- (i) Sale of scrap Rs. 2,74,00,000/- (ii) Shortage of DOA mobiles Rs. 3,82,03,224/- (iii) Accessories of DOA mobiles Rs. 4,62,00,000/- (iv) Credit notes of M/s Bright Point Rs. 10,97,61,523/- (v) Other credit notes Rs.3,37,09,95,646/- (vi) Swap Rs. 33,82,50,816/- (vii) Seized documents Rs. 13,81,25,000/- (viii) (a) TDS default Rs. 3,22,40,175/- (b) TDS default Rs. 53,17,42,328/- (ix) Bonus Rs. 51,59,380/- (x) Prior period expenses Rs. 16,06,037/- ....
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....he issue, the finding of the AO, the finding of the DRP, the arguments of the assessee and the arguments of the Revenue are first listed out and then our findings would be given ground wise. 6. We first take up the assessee's appeal 6.1. Ground no.1 reads as follows. "On the facts and circumstances of the case, the order passed by the learned Assessing Officer (AO) is bad both in the eye of law and on facts." Ground no.1 is general in nature. 6.2. Ground nos. 2 and 3 read as follows. "2. On the facts and circumstances of the case, the directions issued by the Hon'ble DRP are bad and liable to be quashed having been passed beyond the period of limitation prescribed under the statute. 3. Without prejudice to the above and in the alternative, the assessment order passed by the AO is barred by limitation having been passed beyond the statutory period prescribed in the Act." 6.2.1. The above ground nos. 2 and 3 are on the issue of limitation. As per the facts, the draft assessment order in this case was passed on 14th November, 2013. The assessee thereafter filed objection before the DRP on 13th December, 2013. The DRP thereafter has passed the order on 29th August, 20....
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....n view of the above facts, the order passed by the DRP is barred by limitation or the assessment order passed by the AO dated 21st October, 2014 is barred by limitation. As per Section 144(2) of the Act, the assessee can file objection within 30 days of the receipt of the draft assessment order. As per Section 144C(12), no direction can be issued by the DRP after 9 months from the end of the month in which the draft order is forwarded to the assessee. As per Section 144(13), upon receipt of the direction from the DRP, the AO has to pass the assessment order within one month from the end of the month in which such direction is received. In the present case, the DRP has stated that it has passed the order on 29th August, 2014 and the AO has stated that it has received the order on 2nd September, 2014. This order has been sent by DRP by hand and not by post. In this background, the issue for consideration is whether the DRP has passed the order within the time prescribed under Section 144(12) or the AO has passed the order within the time prescribed under Section 144C(13). For computing limitation the instructions have to be issued by DRP so as to be beyond the control of the au....
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....ed. In our view it is not correct that date of the order to be considered for limitation will be the date on which the order goes out of the hands of the DRP. Further the final assessment order passed by the AO on 21st October,2014, is within one month from the end of the month in which the AO received the DRP order and hence is within the limitation period. In the result these ground nos. 2 and 3 of the assessee are dismissed. 7. Ground no.4 reads as follows. "4. On the facts and circumstances of the case, the reference made for special audit under section 142(2A) is bad in law." 7.1. The facts relating to ground no.4 are that : In this case a search and seizure operation was carried out on the assessee on 10th February, 2011. The assessee filed the return of income on 30th September, 2011. Thereafter the AO issued a notice under section 143(2) along with questionnaire. In response thereto, the assessee submitted various details as is evident from the assessment order. The assessee also produced the books of accounts before the AO. On 26th February, 2013 asking the assessee to furnish explanation why not the accounts be audited under Section 142(2A) of the Income Tax A....
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....essary details. The assessee also produced the books of accounts. At the fag end when the assessment was getting time barred, the AO issued a show cause notice for a special audit. The assessee submitted a detailed objection vide letter dated 8.3.2013 placed at paper book pages 832-858. The AO ignoring the contention of the assessee ordered the special audit on 20th March, 2013. Further objections were filed vide letter dated 11.3.2013 placed at paper book pages 860-879 and another letter dated 15.3.2013 and 18.3.2013 placed at paper book pages 880-894. The intention of getting the special audit done was to get extension of the period for completing the assessment. As per the provisions of Section 142(2A), a special audit can be carried out when there is complexity in the accounts. In the present case there was no complexity in the accounts. The accounts have been duly audited by the auditor appointed under Section 44AB of the Income Tax Act. There was no complexity in the accounts. The AO after receiving assessee's detailed clarification, in a mechanical way, ordered for the special audit ignoring the legal position that the AO needs to examine the accounts and other material obje....
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....tion of an amount of Rs. 9,47,21,431/- on account of credit notes issued to M/s. Super Distributors. (ii) On the facts and circumstances of the case, the DRP has erred in not deleting the above addition proposed by the learned AO in the draft assessment order despite the fact that each and every issue raised by the learned AO in the draft assessment order and the special audit report has been rebutted with explanation and evidences beyond doubt. 13 (i) On the facts and circumstances of the case, the learned AO has erred, both on facts and in law, in making addition of an amount of Rs. 10,97,61,523/- on account of credit notes issued to M/s. Bright Point India. (ii) That the above amount has been added by arbitrarily rejecting the detailed explanation and reconciliation filed by the assessee. (iii) On the facts and circumstances of the case, the DRP has erred in not deleting the above addition proposed by the learned AO in the draft assessment order despite the fact that each and every issue raised by the learned AO in the draft assessment order and the special audit report has been rebutted with explanation and evidences beyond doubt. 9.1. The facts relating to these gr....
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....istributors whose accounts were submitted on the ground that the ledger account in the books of these 30 super distributors for subsequent year have not been submitted; iii) An addition of Rs. 10,97,61,5213/- in respect of Bright Point India Pvt. Ltd. on the ground that the assessee has filed to give satisfactory explanation about this account. 9.2. DRP findings The DRP held that the assessee company did not provide the desired information and necessary evidences and dismissed the objection of the assessee and has upheld the contention of the AO. The finding of the DRP in this regard are as under: "The DRP noted that the observations of the special auditors that the assessee company did not provide the desired information and necessary evidence despite having been given sufficient opportunities a numbers of times. It was seen that the total number of parties for which claim was made on account of credit notes was 95. The appellant company as per its convenience provided ledger account (accounts of the assessee in the books of these parties) of 30 parties out of total 95 parties. It was seen that credit, notes aggregated to Rs. 9,47,21,431/- which was not accounted for in t....
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....ook page 4980 and for financial year 2010-11 at page 4982. The special auditor has fully reconciled this account and the important factor to be noted in the reconciliation is that the payments received/ made are exactly matching with the account of Bright Point India Pvt. Ltd. All differences pointed out have been clarified to have been accounted for in the subsequent year. v. The only observation of the auditor is that in the absence of ledger account in the books of Bright Point India Pvt. Ltd. for the subsequent financial year i.e. 2011-12 they are unable to comment about the invoices issued by the assessee have been accounted for by Bright Point India Pvt. Ltd. or not (Paper Book page 4983). vi. Similarly the special auditor verified the account of other super distributors for the financial year 2009-10 and 2010-11 and reconciliation of the various super distributors have been stated in the special audit report starting from paper book page 4985 to 5121. vii. In respect of reconciliation of 13 parties carried out for the financial year 2009-10, the special auditor pointed out that there is a difference of Rs. 1,41,96,478/-. The special auditor further pointed out that ....
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....ble on record of the AO. xii. It may be important to note that vide letter dated 15.01.2013 (Paper book page 740) the assessee had submitted copy of ledger account along with confirmation and reconciliation of M/s Bright Point India Pvt. Ltd. xiii. In view of the above facts, the observations made by the AO are factually incorrect. The assessee company vide letter dated 11.01.2013 has submitted complete copy of ledger account for each of the party. Complete books of accounts which included ledger account of these parties were produced before the special auditor. xiv. The special auditor in fact has verified these accounts and has even observed that on the basis of the analysis of the subsequent year that wherever there is a difference the same has been accounted for by these super distributors in the next year. The report of the special auditor clearly shows that there is no difference in the payments shown by the super distributors and the payments accounted for by the assessee company (PB Pg. 4980, 4982). Further the special auditor report clearly acknowledges that assessee has provided all the ledger accounts, copy of credit notes and complete details with addresses of ....
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....ssessee has submitted complete reconciliation and this fact has been examined and confirmed by the special auditor as is evident from paper book page 4980-4982 whereby no difference remains unexplained. xxvii. The detailed explanation submitted before the DRP (Paper book page 6449-6467) has been rejected arbitrarily by the DRP. xxix. The AO & DRP have ignored the fact that these are running account of the super distributors and merely because some of the super distributors have accounted for the credit notes in the subsequent year cannot be a ground for making addition in the hands of the assessee. 9.5. Revenue's submissions :- It was submitted by the learned DR that this addition has been made on the basis of the factual finding recorded by the AO and as confirmed by the DRP. It was contended that this issue is fact based. The assessee company in the paper book has placed papers whereby it has been contended that the accounts stand reconciled and adverse inference cannot be drawn merely on the ground that the copy of accounts in the books of the super distributors having been submitted. The learned DR relied upon the order of the AO as confirmed by the DRP. 9.6. Our....
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....that the payments received by the appellant company and the payments stated to have been made by M/s Bright Point India Pvt Ltd as per its accounts during the year are exactly the same, i.e., Rs. 161,81,58,957. All these facts are borne on record and the same were brought to the notice of the DRP by the assessee. The observations made by the D~P in this regard are in total disregard to the facts and evidences on record. Accordingly, DRP was not correct in not deleting the addition on this account. Under these circumstances, we are of the considered opinion that the additions in question are bad in law and without any adverse evidence against the assessee. In the result this addition on account of credit notes are deleted. As regards the addition on account of remaining super distributors of Rs. 346,57,17,107, we note that this addition has been made not on the basis of any adverse material or information collected against the assessee. The assessing officer in the draft assessment order has drawn adverse inference on the ground that the appellant company has not provided its ledger account in the books of the 65 super distributors. It is not a case where assessee has failed to p....
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....ntrary to facts on record. Under these circumstances, we are of the considered opinion that the additions in question are bad in law and without any adverse evidence against the assessee. In the result we delete these additions being devoid of merit and these ground nos. 6, 7 and 13 of the assessee are allowed. 10. Ground nos. 8, 9 and 10 read as follows. 8 (i) On the facts and circumstances of the case, the learned AO has erred, both on facts and in law, in making the addition of an amount of Rs. 26,73,07,426/- on account of swap units/warranty reimbursement. (ii) That the above addition has been made by arbitrarily rejecting the explanation and evidences brought on record by the assessee. (iii) On the facts and circumstances of the case, the DRP has erred in not deleting the above addition proposed by the learned AO in the draft assessment order despite the fact that each and every issue raised by the learned AO in the draft assessment order and the special audit report has been rebutted with explanation and evidences beyond doubt. 9 (i) On the facts and circumstances of the case, the learned AO has erred, both on facts and in law, in making an addition of Rs. 7,09....
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....$90/- per mobile handset . The assessee company is eligible to receive 2% swap units on the purchase and 80 units have been mentioned in PO at zero value . The foreign vendor sends a Porforma Invoice to the assess company in which it has mentioned that the assessee company is eligible to receive 2% Free of Cost (FOC) mobile phones i.e. 80 units. Proforma Invoice Particulars Units Rate Amount 100 units of Mobile Phones Model No.W900, against PO No. MIL/10/PO/00266 4000 $90 $3,60,000/- FOC units 80 - - TOTAL 4,080 $3,60,000 The assessee company paid custom duty on all units i.e. 4,080 units. The exchange rate being Rs. 49.11/$ on the date of receipt, the assessee company credited the foreign supplier with Rs. 1,76,79,612/- ($3,60,000/- *Rs 49.11$). The assessee company does not differentiate between its basic unit and swap units, hence entire 4,080 units are recorded in stock register at Rs. 4,333/- (Approx.) the working is as follows:- Particulars Amount(Rs/units) Total purchases (Including swap) 4,080 units Total amount payable Rs.1,76,79,612/- Average price of each mobile phone (R....
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....$75 per unit) $7,50,000/- Price per unit ($7,50,000/10,200 units) $73.53 Now the assessee company receives only 10,000 units on which custom duty is duly paid. The exchange rate being Rs. 47.87/$ on the date of receipt, the assessee company shall credit the foreign supplier with Rs. 3,51,97,055/- ( $7,35,294/- * Rs. 47.87/$ ). The assessee company does not receive any swap units in this case, instead receives a corresponding purchase discount. Hence 10,000 units are recorded in stock register at Rs. 3,520/ unit the working is as follows:- Particulars Amount (Rs./unit) Total purchases 10,000 Total amount payable Rs.3,51,97,055/- Average price of each mobile phone(3,51,97,055/10,000 units) Rs. 3,520/- In this procedure, purchase discount was received instead of 2% swap units which is duly recorded in books of accounts. Kindly refer to Annexure-4(4) for supporting documents." (i) In support thereof the assessee company submitted all the documents including the purchase orders, purchase invoices, Bill of Entry, customs clearance, stock accounts, etc. (ii) The special auditor, however, asked for the con....
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.... of the Act r.w.s 143(3) of the Act as forwarded on 16.11.2013 to the assessee in relating to the assessment order proposed to be passed by the A.O. u/s 144C/143(3) of the Act. Further, this amount will be increased by the G.P. percentage for A.Y. 2011-12 which is 26.54%. At the time of search, there was a shortage of stock which further shows that these extra mobile phones are sold out with the same profit margin at which the other stock mobile phones were sold. Accordingly, further addition of Rs. 7,09,43,390/- was also proposed on account of G.P. Accordingly, the total addition proposed in this regard works out to Rs. 33,82,50,816/- vide draft order u/s 144C of the Act r.w.s 143(3) of the Act as forwarded on 16.11.2013 to the assessee in relating to the assessment order proposed to be passed by the A.O. u/s 144C/143(3) of the Act." 10.4. Assessee's submissions: (i). The addition confirmed by the DRP is in total disregard to the explanation given by the assessee regarding the account of the swap units and evidences as well as confirmations filed in support thereof. (ii). The assessee company has submitted a detailed explanation that in respect of the swap units whe....
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....chase invoices. In case of doubt he could have verified the authenticity of these confirmations or co-related these confirmations with the purchase invoices, proforma invoices and other documents. (xi). Not only that post-receipt of the draft assessment order the assessee obtained the confirmations from these suppliers on the letterheads of these parties (Paper book page 2320-2328). (xii). Thus both the points on the basis of which these additions have been made were duly rebutted (Written submission before DRP Pg. 6426- 6449). (xiii). The DRP has rejected the explanation and evidences arbitrarily on the ground that there was no satisfactory compliance with the requirements of the AO. These findings of the DRP are factually incorrect in view of the above facts and the documents. 10.5. Revenue's submissions: It was submitted by the DR that the AO has made the above addition since the assessee has failed to file necessary evidences in support of its contention. It was submitted that the confirmation was filed by the assessee at the time of the proceeding before the AO were not reliable since these were on the plain paper and not on the letterhead of the companies. He f....
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.... of the DRP are incorrect and against the facts on record. Under these circumstances, we are of the considered opinion that the addition in question is bad in law as it is made without any evidence. In the result this addition is deleted and these ground nos. 8, 9 and 10 of the assessee are allowed. 11. Ground no.11 reads as follows. 11 (i) On the facts and circumstances of the case, the learned AO has erred, both on facts and in law, in making addition of an amount of Rs. 3,82,03,224/- on account of under valuation of closing stock of DOA mobile on NO3 location. (ii) On the facts and circumstances of the case, the DRP has erred in arbitrarily ignoring the explanation and evidences submitted by the appellant company in support of its contention that there is no undervaluation of the closing stock as alleged by the learned AO in the draft assessment order. 11.1. The facts relating to this ground are that during the course of the assessment proceedings it was observed that the assessee has a closing stock of dead on arrival mobile phones of 31,081 units at its two locations. The 5000 units at other than NO3 location has been valued at Rs. 1677/- and whereas 26,081 units a....
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....tions of dead on arrival mobile phones is at the cost of the mobile phones. Once the dead on arrival mobile phones reaches at Naraina location and it is confirmed that this is a dead on arrival phone, the same is cannibalized and that is why the valuation at Naraina unit has been done at Rs. 212. ii. The interpretation of the special auditor report by the AO is also not correct. The special auditor has not stated that this is undervalued. He has simply stated that it is incidental that the company has valued dead on arrival mobile phones in the closing stock at Rs. 212 per unit at Naraina location (Paper book page 4969). iii. During the assessment proceedings assessee has submitted a detailed note (Paper book page 922) pointing out the recovery which are made from the dead on arrival mobile phones which is charger, hand free and battery. The valuation of the N-3 location has accordingly been done on the basis of the salvage value of the dead on arrival mobile phones computed at Rs. 212. Thus there was no reason for the AO to ignore this valuation and value the dead on arrival mobile phones at acquisition cost of a perfect live mobile phone. The AO has ignored the fact that th....
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....e and battery. The assessee has done the valuation of the dead-onarrival mobile phones at its N-3 location on the basis of this salvage value computed at Rs. 212. This valuation done is in accordance with the accounting standard AS-2 whereby closing stock is to be valued at lower of cost or net realisable value. The fact that these are mobile phones, which are dead on arrival and the fact that these are cannibalised and certain parts are gathered and valued is not disputed by the Revenue. The cost of a live mobile phone, cannot, in our view, be adopted as the cost of a dead on arrival mobile phone. Under these circumstances we have no other alternative but to delete this addition. When the facts stated by the assessee are not contradicted by gathering of evidence, then the addition based on presumptions cannot be made. The observations made by the DRP that such valuation of closing stock was highly under valued shows that DRP has not been able to appreciate the facts in right perspective. It has failed to distinguish between a working mobile phone and a dead-onarrival mobile phone. The dead-on-arrival mobile phone cannot be valued at cost. It has to be valued at salvage value. The ....
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.....08.2014 (para-8) has dismissed the objection of the assessee on this issue observing that the objection of the appellant on the basis of some fact which remained uncorroborated during the assessment proceedings is held to be without any merit being an afterthought." 12.4. Assessee's submissions: i. The addition made by the AO is based on surmises and conjecture. The AO has assumed that the assessee would have sold the accessories recovered from the dead on arrival phones and by applying 14% recovery has made an addition of Rs. 4,62,00,000/-. ii. The assessee during the course of the assessment has submitted complete quantitative details. It was pointed out that the total quantity of such accessories was 2,42,426 valued at Rs. 3,66,45,443 and the same have been utilized and given to the super distributors. The details of the same have also been filed (Paper book page 2369- 2370) along with confirmations from the super distributors (PB Pg. 2371 to 2409) were also filed. Thus the allegation of the AO that the assessee has not submitted reply in response to the show cause notice is factually incorrect. The assessee in response to show cause notice issued by the AO submitted r....
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....ssessee would have sold the accessories recovered from dead on arrival phones, out of the books. The assessee has submitted complete quantitative details during the course of assessment proceedings. As per these details the total value of such accessories was Rs. 3,66,45,443. These have been duly accounted for in the books of accounts. The total quantity of such accessories were valued and utilised by giving the same to super distributors. Confirmations were filed from the super distributors. The AO is factually incorrect in stating that the assessee has not filed a reply to the show cause notice issued by the AO as is evident from the reply on record. In fact the assessee has filed detailed explanation with supporting evidences. Even during the course of search no incriminating material was found to show that the assessee has not made sales, outside the books of accounts. The conclusion of the AO has upheld by the DRP, in our view is based purely on surmises and conjectures. Such conjectures, presumptions and surmises cannot be the basis of addition. In the result we delete this addition on the ground that it is devoid of merit. In the result this ground of the assessee is allowed....
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....nt order made the addition of Rs. 2.74 crores being the scrap value computed by him. 13.2. DRP findings The DRP, however, reduced the same and restricted the addition to Rs. 84,20,360/- being the value worked out by the special auditor. The findings of the DRP read as under: "The DRP having considered the entire facts of the case- is of the view that the learned AO did not provide any scientific basis for computing the figures o concealed sales of scrap to the tune of Rs. 2.74 crores. The figure of concealed sales of Rs. 84,20,360/ is considered to be rational and logical being based or the working of accounting experts. Accordingly the objection of the appellant i sustained partially. In the alternative and without prejudice to the above, the AC was not justified in substituting the figure of Rs. 84,20,360 /- worked out by the special auditor with that of Rs. 2.74Crore. The addition made on this account needs to deleted." 13.3. Final order by AO: "The assessee filed objection to the draft assessment order in form no. 35A on 13.12.2013 and the DRP vide its directions dated 29.08.2014 directed to substitute the figure of Rs. 84,20,360/- worked out by the Special Audit....
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....rmula as percentage of the purchases made by the assessee in each of the year and has rightly computed the value of the scrap at Rs. 2.74 Crores on total import of mobile phones of Rs. 1750 Crores. Accordingly he supported the order of the AO. 13.6. Our findings: The special auditor by extrapolation of sale of the scrap under the year of consideration worked out the same at Rs. 84,25,360/-. The special auditors in its report has given a basis for computing scrap value for each year. The AO has no basis whatsoever to come to a conclusion that the sale of scrap amounted to Rs. 2.74 crores. Taking the total imports of the assessee and applying of a percentage cannot be considered as a scientific basis for arriving at the transaction. The special auditor in its report which has been quoted by the AO in the assessment order has given the basis for working out the value of the scrap. Thus, the DRP was correct in holding that the value of the scrap as computed by the special auditor be adopted which comes to Rs. 84,20,360. Nevertheless, we note that the assessee has already accounted for scrap to the tune of Rs. 37.47 lakhs as is evident from its profit and loss account. This figure....
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....er by AO: "Hence, total addition of Rs. 13,81,25,000/- was proposed to the asessee's total income vide draft order u/s 144C of the Act r.w.s 143(3) of the Act as forwarded on 16.11.2013 to the assessee in relating to the assessment order proposed to be passed by the A.O. u/s 144C/143(3) of the Act. The assessee filed objection to the draft assessment order in form no. 35A on 13.12.2013 and the DRP vide its directions dated 29.08.2014 has over-ruled the objection of the assessee." 14.4. Assessee's submissions: i. The addition made by the AO and as confirmed by the DRP is in total disregard to the documents found which are self-speaking and the explanation given by the assessee company in respect of each document which has been quoted by the DRP in its order at pages 58 to 60. The additions are untenable in view of the explanation on each of the pages as under:- ii. The first seized document is page no.6 of annexure A-2 at PB Pg. 814. The Assessing Officer has made an addition of Rs. 25 Lakh. In this regard the assessee has submitted an explanation vide letter dated 11.01.2012, paper book page 2119-2122, relevant para 2 on page 2120. In this reply it was clearly stated th....
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....ons at page 2121. vi. This page no. B-9 of annexure A-5 of which the Assessing Officer gas made an addition of Rs. 16,25,000. This page is placed at paper book page 819. The explanation for the same was submitted vide letter dated 11.1.2013 placed at paper book page 2119-2122, relevant para 6 on page 2122. In this explanation it was clearly stated that Mr. Vikas Jain, Director who was incharge of the business has made rough calculation of the proposed tender for which company wish to apply. As per this proposal company will have to supply 8 Lakh units in two years for total 16 Lakh units in two years and shall have to do approximately Rs. 8 Crore of turnover per annum and while hiring 17+5 = 22 sales staff. There was no financial transaction involved. Accordingly the inference drawn by the Assessing Officer that this represents some cash outside the books of account is absolutely incorrect. These facts become evident from the way this paper has been written. Further a mention of Rs. 25,000 cash has been mentioned which is cash in hand and as such there was no reason for the Assessing Officer to draw any adverse inference. vii. In respect of page B-31 of annexure A-6, the Asse....
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....on of the above page 1 of which the Assessing Officer has made an addition of Rs. 3 Crore. This document is placed at paper book page 821. In the draft assessment order at page 53 of the draft assessment order the AO has stated that the assessee has failed to explain these transactions. This is factually incorrect. The AO has ignored the reply dated 11.11.2013 PB Pg. 2119-2122 relevant para 1 on page 2119 where it has been clarified that this is related to planning mentioned on earlier page regarding establishment of module factory. This page is the continuation of above stated page whereby the cost of module factory has been estimated and in this page the source of investment have been identified that who will invest how much. This nowhere shows the assumption made by the Assessing Officer that any investment has been made by the assessee. There is no linkage whatsoever of this page with the business of the assessee. There is no corroboration whatsoever. x. In view of the above, the addition made by the Assessing Officer and confirmed by the DRP are in disregard to the contents of the document and explanation given by the assessee in respect of these various documents and hence....
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....ons the learned DR submitted that the addition has been rightly made by the AO and confirmed by the DRP. 14.6. Our findings: This ground is based on the seized documents. Hence we examine each of these seized documents. (i) First we shall take up document A-2 at page 6 of the assessee's paper book. A perusal of this document demonstrates that there is no mention of any sum of Rs. 25 lakhs. Hence the addition based on this basis that an advance has been made for the purchase of land is purely on surmises. As there is no entry or writing in the document in question as alleged by the AO, we delete the addition in question. (ii) Document A-3 consists of various pages totalling to a sum of Rs. 5 lakhs. The first item alleged is cash expenditure of Rs. 2 lakhs on account of IPO. The assessee contends that no such expenditure has been incurred by it. We have examined the document in question which is at pages 2119 and 2122 of the paper book. The relevant page is 2120 of the paper book. No financial transaction has been recorded in this page. The assessee has accounted that Rs. 2,19,17,208/- as IPO expenditure. In view of the above discussion we delete this addition. (iii) T....
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....lations cannot lead to a conclusion that the assessee has earned unaccounted income. As held earlier scribbling and figures on loose papers, without any corroboratory evidence cannot lead to a conclusion that the assessee has received unaccounted money. Hence this addition is hereby deleted. (vi) The next piece of paper based on which the addition of Rs. 25 lakhs is made, page no.B-31 of Annexure A-6. The assessee explains that these are notings made by Mr.Jha, the accounts clerk of the company and that these notings were recording entries, which were reversed in the books of accounts. The AO assumed that these reversal of entries are unaccounted income. Such a view cannot be sustained. When entries are found in the books of accounts and when the same corroborates to rough workings made by the Accounts Clerk of the assessee, to argue that these rough notings on a piece of paper are unaccounted income of the assessee is incorrect and against the facts of the case. The addition in question is purely made on the basis of conjectures and surmises, hence we delete the same. (vii) The next addition is Rs. 10 crores based on page no.1 Annexure A-V. The document in question is placed....
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....o the following three parties:- i) M/s Cyber Green Rent Car Pvt. Ltd. Rs.23,49,036/- ii) M/s Good Times Tours & Travel Rs.1,45,330/- iii) M/s Chauhan Tours & Travels Rs. 71,000/- Total Rs.25,65,386/- 11.1 A show cause notice was issued by the AO on account of the failure to deduct tax at source in respect of above payments. It was contended by the assessee company that these parties are providing transportation services of pick and drop facility to its employees and as such the same is not liable for deduction of tax at source in view of the specific exemption provided under Section 1904C(6). The AO not being satisfied with the explanation of the assessee made the addition of Rs. 25,65,386/-. 15.2. DRP findings "Since the appellant conceded that it failed to deduct tax in respect of Rs. 5,41,301/ - only the AO is directed to apply his mind independently and verify the claim of the appellant. Accordingly the objection is partly allowed." 15.3. Final order by AO "The assessee filed objection to the draft assessment order in form no. 35A on 13.12.2013 and the DRP vide its directions dated 29.08.2014 has partly allowed....
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....38) along with details (Paper book pages 2039-2075). This amendment has been held to be retrospective and it has been further held that where additions have been made under section 40(a)(ia), an opportunity has to be given to the assessee for complying the requirements of this proviso of submitting the prescribed certificate as required under proviso to Section 201(1). iii. For this reliance is being placed on the following judgments:- i) ITO vs Gaurimal Mahajan & Sons ITA no. 1852/PN/2012 dated 6- 1-2014 (ITAT, Pune Benches) ii) Sea Food Park India Ltd vs DCIT ITA no. 762/Coch/2013 dated 31-3-2014 (ITAT, Cochin Bench) iii) DCIT vs Entraco Powers Systems Pvt Ltd ITA no. 1039/PN/2012 dated 30-4-2014 (ITAT, Pune Benches) iv) Satish Chand Agarwal vs JCIT ITA no. 339/Agra/2013 dated 29-5- 2014 (ITAT, Agra Bench) v) DCIT vs Ansal Landmark Townships Pvt Ltd ITA nos 2859, 2972 & 877/Del/2013 dated 22-7-2014 (ITAT Delhi Benches) vi) ITO vs Dr Jaideep Kumar Sharma ITA nos. 3893, 5696/Del/2011 dated 25-7-2014 (ITAT Delhi Benches) vii) Shri G Shankar vs ACIT ITA no. 1832/Bang/2013 dated 10-10- 2014 (ITAT Bangalore Benches) viii) DCIT vs Jaipur Vidyut Vitran Nigam Lt....
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.... assessee cannot be treated as an assessee in default, if the deductee has furnished return of income u/s 139 of the Act. The assessee has submitted the details whereby all the 3 deductees are income tax payees. However, the assesss is required to submit the certificate as prescribed in the proviso to s.201(1). The DR has submitted that it has no objection if this issue is remitted to AO to make necessary compliance by filing the prescribed certificate about the deductee having filed the return of income, paid taxes thereon and the above said amount on which TDS was liable to be deducted has been included in their income. Under these circumstances, the issue is remitted to the file of the AO to do the necessary compliance as required u/s 201(1) of the Act. In the result this ground of the assessee is allowed for statistical purposes. 16. Ground no.17 reads as follows. 17 (i) On the facts and circumstances of the case, the learned AO has erred, both on facts and in law, in disallowing an amount of Rs. 3,22,40,175/- invoking the provisions of the section 40(a)(ia) of the Act (ii) That the disallowance has been made despite the fact that the DRP has directed not to make disal....
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....chart is based on seized materials and the special auditor's report. Items which do not attract 40(a)(ia) shall be excluded upon the verification. In view of the above, addition of Rs. 3,22,40,175/- is made to the income of the assessee after verification of records." 16.4. Assessee's submissions: The final assessment order passed by the AO is contrary to the direction given by the DRP. During the course of the assessment proceedings itself the assessee has clarified this issue vide letter dated 2.11.2013 (PB Pg. 1285-1286 along with evidences at Pgs. 1287-1621) that there is no failure to deduct tax on this amount. The assessee has further submitted a detailed explanation placed at Paper book page 2732- 2733 pointing out that these amounts are not liable for TDS. This issue hasarisen because the aggregate amount of credit has been picked up from each of the ledger account without looking into the narration and the nature of the transaction while verifying deduction of tax at source. In fact out of this amount tax has been deducted on Rs. 1,59,65,555 and tax is not deductible on balance amount because of various reasons explained hereinafter. (ii) The details of each....
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....ent order has not taken into consideration these directions of the DRP. 16.6. Our findings: Here also the directions given by the DRP have not been followed by the AO. The final assessment order passed by the AO cannot be in violation of the directions given by the DRP. The assessee has explained that there is no default on its part in deducting tax at source and has also filed details before the AO and the DRP. With the assistance of the AR, we have verified the details with the supporting evidences. As per the details on record and ejvidences in support thereof, there is no default in respect of the amount added by the AO. The assessee has submitted compelte reconciliation and the reason thereof. Further, the assessee's contentions that tax has been deducted on an amount of Rs. 1,59,65,555/- and its contention that tax is not deductible on the balance due to various reasons, has not been contradicted by the DR. Under these circumstances we delete this addition of Rs. 3,22,39,995 and allow this ground of the assessee. 17. Ground no.18 reads as follows. 18(i) On the facts and circumstances of the case, the learned AO has erred, both on facts and in law, in disallowing a....
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....ring the year the assessee has made a provision of Rs. 64,02,422 on account of bonus and has made a total payment of Rs. 39,57,707 by 31st March, 2011 which included payment in respect of the bonus of preceding year and added back. A further payment of Rs. 4081 before the due date of filing the return was made. Details are placed at PB Pg. 2334 with ledger account of bonus payable at PB Pg. 2336-2350. Accordingly the assessee company will be entitled to the deduction of Rs. 39,61,768 (Rs.39,57,707 + Rs. 4,081 being the amount paid before the due date of filing the return) and hence disallowance under section 43B is to be restricted to Rs. 24,40,854/- and not Rs. 51,59,380 made by the Assessing Officer. iv. It was on this basis that DRP has directed the AO to restrict the addition to Rs. 24,40,850. Accordingly the action of the AO in making the disallowance of Rs. 51,59,380 as against correct amount of Rs. 24,40,854 is not justified. All the details in this regard were before the AO as is evident from Paper Book page 2334 whereby the amount paid during the year was Rs. 39,57,707 and a further payment of Rs. 4081/- has been made before the due date of filing the return. Thus the t....
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....tors. During the course of the assessment the AO issued notice under section 133(6) to the various parties with whom the assessee was having dealing. In respect of the following three creditors the AO noticed difference in the balance as per the books of accounts of the assessee and the balance as per the books of accounts of these creditors:- S.No. Name Balance as per Party Balance as per your books Difference Difference 1. M/s. Cargo Planners 2283232 20095752 17812520 2. M/s. Design Horizon, Naraina 1135398 1135398 3. M/s. Shyam Telecom Ltd. 1993845 6757681 4763836 Total 2,37,11,754 14.1 The AO thereafter issued a show cause notice to file confirmation s from these creditors. The confirmations filed by the assessee were rejected by the AO on the ground that the same did not bear the PAN or any other proof which can certify the genuineness and identity of the parties and accordingly the AO made the above addition of Rs. 2,37,11,754/-. 18.2. DRP findings "The facts presented by the appellant were considered by us. There appears to be merit on facts in the....
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....er assessee's books of account is Rs. 2,00,95,752/-. The difference is on account of the bills raised by M/s Cargo Planners which have been accounted for by the assessee in the next year. The reconciliation statement is at PB Pg. 2415. Copy of account of the Cargo Planners as well copies of account in the books of the assessee for both these years are at PB Pgs. 2506-2690. Thus, the account with the creditor stands fully reconciled and the AO was not justified in ignoring the same despite DRP direction and hence the addition made by the AO on this account is untenable. iv. As regards M/s Design Horizon there is a difference of Rs. 11,35,395/- This difference was because assessee has issued two cheques as under:- i) Cheque no. 953508 Rs. 6,23,118/- ii) Cheque no. 428951 Rs. 5,12,279/- Total Rs.11,35,397/- These cheques were not presented by the party and became stale and accordingly the amount was reversed in the books of account as on 31st March as is evident from copy of account. M/s Design Horizon has not reversed these cheques in their books. These cheques were again issued by the assessee in the subsequent year as is evident from the statement ....
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.... there are certain variations in reconciliation on accounts with three parties, variations are treated as income. The assessee has placed a copy of a note giving reconciliations on accounts with these parties at apge 2410 of the paper book. It is also claimed that there are factual errors in the case of Cargo Planners and as per party account it is Rs. 2,28,30,232/- and not Rs. 22,83,232/- as mentioned in the assessment order. Such silly type of mistakes have been made a basis for the addition, without considering the submissions of the assessee. As the accounts stand fully reconciled, we are of the considered opinion that no addition can be sustained on this ground. Thus we delete the addition and allow this ground of the assessee. 19. Ground no.20 reads as follows. 20. On the facts and circumstances of the case, the learned AO has erred, both on facts and in law, in making addition of an amount of Rs. 5,21,025/- invoking the provisions of Section 14A of the Act. 20. Facts relating to this ground are that: In ground no.20 assessee is challenging the addition of Rs. 5,21,025/- made by the AO by invoking the provisions of Section 14A of the Act. As per the AO, assessee has ....
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....mount involved, this ground is not being pressed with a request that the issue of disallowance on this account under section 14A be kept open in other years 20.4. Revenue's submissions: Ld.D.R. submitted that in view of the submission made by the counsel of the assessee company whereby this ground has not been pressed considering the small amount involved the DR submitted that he has no further submission to make on this issue. 20.5. Our findings: This ground is on the issue of disallowance u/s 14A. In view of the submission made by the learned AR for not pressing this ground, this ground is dismissed with liberty to the assessee that the issue of disallowance under section 14A to be kept open in other years. 21. Ground no.21 reads as follows: 21 (i) On the facts and circumstances of the case, the learned AO has erred, both on facts and in law, in making addition of an amount of Rs. 1,18,63,125/- on account of shortage of mobile phones. (ii) That the addition has been made rejecting the explanation and evidences brought on record by the assessee. (iii) Without prejudice to the above addition has been made most arbitrarily estimating the cost of mobile phone ....
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....v. Vide letter dated 9.1.2013 (paper book page 440) assessee submitted the reconciliation of the stock physically found with stock register to the AO. vi. In response to the show cause notice issued by the AO, vide letter dated 1.11.2013 (paper book page 1258), the assessee again submitted the explanation regarding the difference in the stock physically found and the stock as per the stock register along with evidences placed at paper book pages 1262-1284. vii. Thus the allegation of the AO that the explanation submitted by the assessee is not supported by any reconciliation with corresponding reflection in the books of account is incorrect. As explained above, assessee has submitted detailed reply with evidences. viii. The allegation of the AO that the assessee has not submitted the cost of the mobile phones is also incorrect because complete books of account with purchase invoices were before the AO. ix. The AO has gone wrong in taking the value of mobile handset at Rs. 3000 per handset and adding gross profit of 26.54% thereon ignoring the fact that average sale price of the mobile handset sold by the company (which included gross profit also) as per the quantitative....
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....r purchase being made outside the books of account but the fact remains that there was a difference in the stock as per the books of account and the stock physically found. As regards the contention of the assessee that the difference in any case is too miniscule, considering the fact that the stock which was physically counted was spread over at many locations it was submitted by the learned DR that it is the duty of the assessee to give reconciliation of each and every difference and benefit of such error or discrepancy cannot be given while determining taxable income. 21.6. Our findings The assessee has filed a reconciliation statement, reconciling the stock physically found, during the post search proceedings, before the Dy.Director of Income Tax (Investigation) vide letter dt. 8.11.2011 and 16.5.2011. This explanation was again repeated before the AO on 1.11.2013. We have perused the detailed reply as well as the connected papers. In our view the revenue authorities have not bestowed any attention to the explanation given by the assessee. There is no evidence whatsoever found during the course of search of the assessee having sold stock outside the books of accounts. We ....
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....ore the AO shall refer to the special auditor's report once again and find out the incriminating entries. The amount of Rs. 4.27 Crores is deleted subject to proper verification by the AO. The remaining addition on this account is upheld." 22.3. Final order by AO: "The assessee filed objection to the draft assessment order in form no. 35A on 13.12.2013 and the DRP vide its directions dated 29.08.2014 has partly allowed the objection of the assessee on this issue observing that, "the amount of Rs. 4.27 crore is deleted subject to proper verification by the A.O. The remaining addition on this account is upheld." 22.4. Assessee's submissions: i. In the final assessment order (page 73-74), the AO after recording the direction of the DRP has held that assessee has not submitted any reconciliation and documentary evidences in the assessment proceedings and has made again the total addition of Rs. 7,44,24,668. ii. The observation of the AO in the draft assessment order, finding of the DRP and the observation of the AO in the final assessment order are factually incorrect and in total disregard to the facts already on record. iii. The allegation of the AO, as stated i....
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.... AO, direction given by the DRP and the final assessment order passed by the AO is in total disregard to the facts and the written submissions before DRP (PB Pg. 6505-6507) which clearly demonstrate that this bank account is a regular bank account and there is no transaction about which any doubt could be raised. 22.5. Revenue's submissions: Ld.DR submitted that this ground is common with no.9 in the Revenue appeal where the revenue is challenging the direction of the DRP to delete the addition to the extent of Rs. 4.27 Crores after verification. The learned DR submitted that this addition has been apparently made by the AO on the basis of the non-submission of the details by the assessee company. However as submitted before the DRP this account is a regular bank account of the assessee forming part of the books of accounts. The assessee from the documents placed in the paper book and as per the submission before the AO has submitted the copy of the account alongwith narration of debit and credit. The DRP thereafter has directed the AO to verify the account has been directed deletion to the extent of Rs. 4.27 Crores. The AO in the final assessment order, however, has made the....
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....tors have certified in their audit report that the books of accounts give a true and clear view of the profit of the year under consideration." "24(i) On the facts and circumstances of the case, the learned AO has erred, both on facts and in law, in making addition of an amount of Rs. 33,61,06,480/- estimating the G.P. of the assessee at an arbitrary rate of 28%. (ii) On the facts and circumstances of the case, the addition made by the AO on account of the enhanced gross profit is untenable in the absence of any material or evidences brought on record by the AO that the appellant company has received any amount over and above the amount stated in the books of account." 23.1. Facts relating to this issue are as follows. In grounds no. 23 and 24 the assessee is agitating the rejection of the books of account and enhancement of the gross profit rate. As per the AO there have been numerous instances where references have been made by the special auditor and M/s KPMG India in their respective reports pertaining to the assessee company regarding improper maintenance of accounts. In this regard has referred to the difference in short of the 3125 mobile handsets, scrap sales....
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....age 4924 has again certified that proper books of accounts have been kept by the HO and branches of the assessee visited by them so far it appears from their examination of books and proper returns, adequate for the purposes of the audit have been received from the branches not visited by them. iii. The assessee has maintained also the stock records and the stock tally has been certified by the company auditors at page 31, by the tax auditor at page 57 and by the special auditor appointed by the AO himself at page 4931. iv. No material was found during the course of the search indicating any sale or purchase outside the books of accounts. v. During the course of the assessment proceedings the assessee has produced the books of account before the AO at number of times as is evident from various letters placed in the paper book. It is not the case of the AO that books of accounts were not produced or details were not filed. vi. As regards the specific issues stated in Para 24 on page 67 of the draft assessment order by the AO for rejecting the books of accounts it submitted that KPMG India report was obtained by a prospective investor for due diligence. As per this report....
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....ereof have been filed. xii. Similarly addition on account of difference in credit notes for rejection of books of account has been explained in ground no. 6, 7 and 13 whereby it has been pointed out that the addition has been made ignoring the facts and evidences brought by the assessee. xiii. Further rejection of accounts cannot be done lightheartedly. The accounts can be rejected as unreliable if important transactions of purchase and sales are omitted or the accounts do not include a particular class of business. It is a settled law when the account books are produced it is for the taxing authorities to give valid reasons for declaring them to be either false or not to have been maintained properly. The books of account cannot be rejected merely on the ground that certain stock was found to be rejected or unfit for sale by the assessee and also on the ground of the low profits. The books of account cannot also be rejected merely on the ground that certain expenses have been claimed which are not allowable in fact and where the defects pointed out in the books of account was of general or technical in nature. It is also a settled law that it not open to the AO to discard th....
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....iii. The assessee on its part has submitted the complete details of sales and purchases, debtors and creditors vide letter dated 23.10.2012 (PB Pg. 101) along with details at PB Pgs. 107-223. The assessee has submitted the stock details at PB Pgs. 320-398. Assessee has produced books of accounts in support thereof before the AO vide letter dated 20.2.2013 at PB Pg. 732-734, relevant Para 6 on Page 734 which included stock register, sale and purchase bills and vouchers. Further vide letter dated 28.2.2013 soft copy of the books of accounts were also submitted. ix. Vide letter dated 8.10.2013 placed PB Pg. 899-900 explanation for decline in G.P. during the year was also submitted. In this letter it was explained that the sales during the year has increased by 47% as compared to last financial year. Considering the line of the business, there is a change in product line very year and there is a variation in margin on each product line. It was also explained that the cost of goods sold during the year has increased to 57% which itself has reduced the gross profit as compared to last year by 4.67%. x. The AO has nowhere been able to point out any fault or defect in the explanation gi....
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....oks of accounts as may enable the Assessing Officer to compute its total income. It is only when the books of accounts are maintained in such a manner which makes it difficult for the Assessing Officer to compute its total income then only the books of accounts can be rejected. This is not the case here. Even if, there are certain discrepancies or errors which are not so crucial so as to disable the Assessing Officer to compute the total income of the appellant, then the books of account cannot be rejected but such discrepancies can be taken into consideration while computing the total income. Further, the rejection of books of accounts is not justified when mistakes in the books of accounts are of general or technical nature. The remarks given by the Assessing Officer in the appellant's case are neither sufficient for rejecting the duly audited books of accounts not the Assessing Officer has shown that how these remarks would have a bearing in giving a finding that true income cannot be computed on the basis of books of accounts maintained by the appellant on day to day basis in regular course of business. As already stated there is no ground whatsoever which justifies t....
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....ults as such after estimating the Gross profit. S.No. Particulars Amount (in Rs.) 1. Sale of scrap 84,20,360 2. Shortage of DOA (Dead on Arrival) mobiles 3,82,03,224 4,62,00,000 3. Credit notes of M/s. Bright Point 10,97,61,523 4. Credit notes to distributors 3,37,09,95,646 5. Credit notes to super distributors 9,47,21,431 6. Swap units 26,73,07,426 7. G P on swap units 7,09,43,390 8. Sundry creditors 2,37,11,754 9. Shortage of mobiles 1,18,63,125 Total 404,21,28,178 In support thereof reliance is placed on the following judgments: i) CIT Vs. Banwari Lal Banshidhar (1997) (All)(Hc) ii) Indwell Construction vs. CIT (1998) (AP) iii) CIT vs. Aggarwal Engg. Co. (2006) (P&H) iv) CIT vs. Smt. Santosh Jain (2006) (P&H) v) CIT vs. Gain Chand Labour Contractor (2007) (P&H) vi) Amrit Sugar Co. vs. ITO (2010) (HP) 24.3. Revenue's submissions: The learned DR submitted that the AO has made various additions on the basis of the findings given for each of the additions and accordingly it cannot be contended that once gross profit rat....
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....age of these three and adding further 300 basis point he computed the rate of interest at 15.35% and accordingly by applying this rate proposed an addition of Rs. 1,05,66,451/-. The DRP, however, held that the interest to be charged should be the SBI base rate plus 150 basis points. The AO in the final assessment order restricted the addition to Rs. 7,71,349/-. 26.2. DRP findings: "Keeping in view the Safe Harbour Rule, the DRP directs the AO/TPO that the interest should be computed on the basis of SBI base rate as on 30th June of the relevant previous year plus 150 basis points." 26.3. Final order by AO The above was adjudicated by DRP & eferred to TPO for computation. The TPO vide their order no.328 dated 24.9.2014 has been received in this office by diary no.616 dated 30.09.2014. The TPO has arrived at the following conclusion after considering the DRP directions. Recomputation for adjustment in interest on loan advanced to AE Amount of adjustment in original order Rs.1,05,66,451 Less: Amount of adjustment as per DRP order Rs. 7,71,349 Net relief Rs.97,95,102 Recomputation for adjustment in stand by letter of credit/bank guarantee ....
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....ered as the loan was given from India and the prime lending rate in India was to be considered. Consequently, the Assessing Officer had determined the rate at 11.75 per cent and the difference to the extent of Rs. 45,23,817.53 was added to the assessee's income. The assessee submitted that the prime lending rate was a domestic rate and the transaction done by the assessee was an international transaction for which the LIBOR rate was to be applied. It further submitted that the RBI had also given directions wherein it was specifically mentioned that the LIBOR rate was to be applied. Therefore, it prayed for the deletion of addition to the total income as made by the AO. The Tribunal held that 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 transaction, then the transaction would have to be looked upon by applying the commercial principles in regard to international transaction. If that was so, then the domestic prime lending woul....
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....42% if the claim of the assessee is found correct. The ground raised by the assessee on this issue is partly allowed for statistical purpose." (vi). The Mumbai Bench in case of Dy. CIT v. Tech Mahindra Ltd. [2011] 46 SOT 141 (URO)/12 taxmann.com 132 (Mum.) for Assessment Year (AY) 2004-05, held that the arm's length price in case of interest on extended credit period allowed to an Associated Enterprise (AE) based in USA shall be determined on the basis of USD London Inter Bank Offer Rate (LIBOR) instead of applying the rate of interest pertaining to EURO denominated loan charged to AE based in Germany since the AE was based in USA. The facts of the case were that the Assessee in that case was a joint venture between Mahindra & Mahindra Limited (Indian company) and British Telecommunications (UK Company), was engaged in rendering of software services relating to telecommunication, internet technology and engineering etc. During the previous year, the taxpayer had extended credit beyond the stipulated credit period to its AE based in USA without charging any interest on such extended credit period. During the assessment proceedings, the TPO rejected taxpayer's arguments an....
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....not put a seal of approval on the true character of the transaction from the perspective of transfer pricing regulation as the substance of the transaction has to be judged as to whether the transaction is at arm's length or not. Further, CUP is the most appropriate method for determining ALP in the present case. In this case the Tribunal held as below: "In the present case the AE is a German company. Eurobior rates are based on the average interest rates at which a panel of more than 50 European banks borrow funds from one another. There are different maturities, ranging from one week to one year. These rates are considered to be the most important rate in the European money market. The interest rates do provide the basis for the price and interest rates of all kinds of financial products like interest rate swaps, interest rate futures, saving account and mortgages. We find that the RBI in respect of export credit to exporters at internationally competitive rates under the scheme of pre-shipment credit in foreign currency (PCFC) and Rediscounting of Export Bills abroad (EBR), has permitted banks to fix the rates of interest with reference to ruling LIBOR, EURO LIBOR or EURIBOR,....
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....he contention of the assessee that the rate should be computed with reference to the LIBOR applied by the ITAT in the various judgments has not been accepted by the department as the same is subject matter of further appeal before the High Court. 26.6. Our findings: Ground no.27 is on addition as a transfer pricing adjustment regarding interest on loan given to subsidiary company. The DRP has directed to apply SBI base rate plus 150 base points. The issue is covered in favour of the assessee and against the Revenue by the following decisions: 1. Siva Industries & Holdings Ltd. Vs. Asst.CIT(2011) 11 taxmann.com 404 (Chennai-ITAT) 2. M/s Four Soft Ltd., Hyderabad vs. DCIT (ITA no.1495/Hyd/2010) 3. Dy.CIT vs. Tech Mahindra Ltd. (2011) 46 SOT 141 (URO)/12 taxmann.com 132 (Mum) 4. Tata Autocomp Systems Ltd. Vs ACIT (2012) 21 taxmann.com 6 (Mumbai - Trib.) As per these decisions for proper bench marking, interest rate to be applied is the interest rate of the currency in which the amount has been advanced. Since in this case the loan has been given in USD, the interest rate will be LIBOR+. The international rate fixed by the LIBOR has to be considered for bench marki....
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....451 Less: Amount of adjustment as per DRP order Rs. 7,71,349 Net relief Rs.97,95,102 Recomputation for adjustment in stand by letter of credit/bank guarantee Amount of adjustment in original order Rs.1,22,39,100 Less: Amount of adjustment as per DRP order Rs. 54,39,600 (2% of stand by letter of credit given of Rs. 27,19,80,000) Net relief Rs.67,99,500 Addition on account of interest Rs. 7,71,349 Addition on account of SBLC Rs. 54,39,600 Total addition Rs. 62,10,949 "The Transfer Pricing Adjustment in the case of the assessee stands at Rs. 62,10,949/- from Rs. 2,28,05,551/- in the original order. 27.4. Assessee's submissions: The assessee has obtained Standby Letter of Credit by paying 1% cost. Hence the DRP was not correct in applying the rate of 2% ignoring the fact that the assessee company has obtained the Standby Letter of Credit at the rate of 1% only. Rate of 2% will mean 100% Profit on the cost incurred by the assessee in obtaining the Standby Letter of Credit. As held in various judgments cited hereinabove on the issue of determination of rate of interest on the money lent to subsidiary company, the financial posi....
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....USD 6000000 in respect of addition of Rs. 2,28,05,551 /- - on account of Transfer Pricing issue without examining and adjudicating upon on merits of the case. 30.1. We have dealt with this issue while adjudicating ground no.28 in the assessee's appeal. Consistent with the view taken therein we dismiss this ground of the Revenue. 31. Ground nos. 2 and 3 read as follows. 2. The Hon'ble DRP has erred in law and on facts as well in directing substitute the figure of Rs. 84,20,360/- - worked out by the Special Auditor & A.O. instead of proposed addition of Rs. 2.74 cr on account of extrapolation of scrap sales without examining and adjudicating upon on merits of the case. 3. The Hon'ble DRP has erred in law and on facts as well in directing the A.O. to re-verify the claim of the appellant without examining and adjudicating upon on merits of the case. Our finding: These grounds are similar to ground no.14 in the assessee's appeal Consistent with the view taken therein we dismiss these grounds of Revenue. 32. Ground no.4.1 reads as under. 4. (i) The Hon'ble DRP has erred in law and on facts as well in directing the A.O. to identify the nature of the transactions as g....
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....nue stands dismissed. 34. Ground no.5 reads as follows. 5. The Hon'ble DRP has erred in law and on facts as well in directing the A.O to allow the claim of the assessee u/s 43B of the Act after proper verification in respect of addition of Rs. 51,59,3801- on account of disallowance of bonus u/s 43B without examining and adjudicating upon on merits of the case. Our finding:- The directions of the DRP to the AO to allow the claim of the assessee u/s 43B of the Act after proper verification is disputed by the Revenue. We find no infirmity in the directions of the DRP. We have dealt with this issue while disposing of ground no.18 of assessee's appeal. Consistent with the view taken therein we dismiss this ground of appeal. 35. Ground no.6 reads as follows. 5. The Hon'ble DRP has erred in law and on facts as well in observing that the expenses of Rs. 16,06,037/- was a prior period expenditure and should have been allowed there and since it was not done it should be allowable expenditure in respect of addition on account of prior period expenses amounting to Rs. 16,06,037 /- , without examining and adjudicating upon on merits of the case. 35.1. Our finding: The DRP ....