TaxTMI 
TaxTMI 
2015 (12) TMI 1170
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....sion of the DRP in confirming the action of AO in making an adjustment of Rs. 1,88,83,489/- in relation to the assessee's international transactions of provision of support services in respect of Clinical Study Management and Monitoring Support Services. We have heard both the sides on this issue, and also gone through the orders of lower authorities. 3.1. The brief background of the case is that during the year the assessee provided support services to its AE in relation to coordination and managing the clinical trial performed by third party institutions/hospitals/ Trust in India (investigators under the instructions of Pfizer Inc.). As per the assessee, the functions performed by it are as under: 1) Providing low end support/coordination services to its AE's 2) Acting as a facilitator / coordinator between the AE and the third party institutions/ hospitals/ doctors, who actually perform the clinical trials under the instructions of Pfizer Inc. 3.2. The other vital facts are that the assessee company is earning assured return by adding 10% mark-up on the total cost and it has characterized itself as a low risk support service provider. Following comparison has been furnished....
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....ation only the cost incurred by it to undertake intermediary functions i.e. own internal costs and that the payments to the investigator should be excluded from the cost while determining profit mark up. I f such pass through costs are excluded, the assessee's margin would be 12% and i f these pass through costs are not excluded its operating profit margin is 7.83%, both of which are higher than the comparable companies whose operating profit margin is 2.28%. Thus, the transaction of the assessee with the AE being at arm's length, no adjustment is warranted. 'the assessee has also filed a copy of its agreement dated 1.1.97 with its AE in support of its claim that its role with regard to cl inical study management is merely that of a facilitator or an intermediary, performing its agency function. On this basis, the assessee contended that adjustment is not warranted, as unlike those companies, the assessee acts as a risk free support service provider. The assessee also contended that the TPO has not provided the benefit of 5% range as prescribed in the Proviso to Section 92C(2) of the Act. 3.4. The assessee has relied on the decision of Mumbai Bench of the Tribunal in the case of Z....
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....has challenged the action of DRP in confirming the action of AO in taxing an amount of Rs. 5,98,81,000/- being rental income from leased properties, as profit and gains of business or profession, instead of income from house property. 6.1. It has been argued at the outset by Ld. Counsel of the assessee that these issues are covered in favour of the assessee by the judgment of Hon'ble Bombay High Court in assessee's own case. Our attention has been drawn by him upon the judgment of Hon'ble High Court available at pages No. 7 to 8 of the paper book. This judgment is also reported as CIT vs. Pfizer Ltd 330 ITR 62. In this judgment, Hon'ble High Court has affirmed the order of Tribunal holding that the rental income received by the assessee from sub-lease of the commercial prices was to be considered as 'income from house property'. It was argued that the DRP has illegally confirmed the action of AO. On the other hand, Ld CIT DR has relied upon the orders of lower authorities. 6.2. We have gone through facts of the case and orders of lower authorities. The relevant facts as culled out from the orders are that in its Profit & Loss Account, the assessee had credited a sum of Rs. 5,98,8....
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.... reproduced herein: "We have considered the draft assessment order vis-à-vis the submissions and arguments put forth by the assessee in the course of these proceedings. It is found from record that in all the earlier years, the department has consistently taken the view that the impugned income is assessable as 'income from Business' and not 'Income from House Property' as claimed by the assessee. Conforming with the Departmental view on this issue, the Assessing Officer's proposed treatment of the rental income as "Income from Business" is upheld." 6.5. In our considered view, the judgment of jurisdictional High Court that too in assessee's own case must have been followed, strictly and respectfully. The action of the DRP, disregarding the judgment was contemptuous in nature. Thus, respectfully following the judgment of jurisdictional High Court we decide this issue in favour of the assessee and direct the AO to assess the impugned rental income under the head, "income from house property". Therefore, Ground no.4 is allowed. 7. Ground No.5 is not pressed by the Ld. Counsel. Accordingly, it is dismissed. 8. Ground No.6: In this ground the assessee has challenged the act....
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....has a right to visit the manufacturers' premises and inspect the process to ensure that the goods are as per the specifications. For the purpose of packing its products, the assessee purchases packaging materials from various suppliers on a principal to principal basis. The packaging material is supplied as per the instructions given in the purchase order. The invoice raised for the supplies is inclusive of the Excise duty and Sales tax as in the case for normal purchase of material. The payments are made to these independent manufacturers/suppliers as per the terms of the agreements. The Manufacturer pays Excise duty and VAT on the goods and the title in the goods is transferred to the appellant at the time of delivery. In view of these features, it was submitted that these transactions were in the nature of purchase/sale of goods and hence not covered under section 194C of the Act. 8.4. It was also submitted by the Ld. Counsel that amendment has been made u/s 194C by Finance Act 2009, whereby, in the definition of term "Work", an exclusion has been made providing that, "work" does not include manufacturing or supplying a product according to the requirement or specification of t....
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....ctible under section 194C on outsourcing contracts and whether outsourcing constitutes work or not. To bring clarity on this issue, it is proposed to provide that "work" shall not include manufacturing or supplying product according to the requirement or specification of a customer by using raw material purchased from a person other than such customer as such a contract is a contract for 'sale'. This will however not apply to a contract which does not entail manufacture or supply of an article or thing (e.g. a construction contract). It is also proposed to include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, within the definition of 'work'. It is further proposed to provide that in such a case TDS shall be deducted on the invoice excluding the value of material purchased from such customer if such value is mentioned separately in the invoice. Where the material component has not been separately mentioned in the invoice, TDS shall be deducted on the whole of the invoice value." 8.8. The perusal of this explanatory statement clarifies that intention of the legislature for bringing out....
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....nt. 8.11. Thus, when it has been held that the assessee was not liable for deduction of TDS on this transactions, question of making any disallowance u/s 40(a)(ia) of the Act, does not arise, and therefore, keeping in view the aforesaid discussion, facts and circumstances of the case and the position of law, we find that the disallowance made by the AO is illegal and the same is directed to be deleted, and Ground no.6 is allowed. 9. Ground No.7: It deals with the action of lower authorities in making reference to the DVO for determination of Fair Market Value of Chandigarh property as on 1st April 1981 which was sold by the assessee during the year, and re-computing the capital gains on its sale at Rs. 2,52,31,62,959/- as against an amount of Rs. 206,64,67,043/- as shown by the assessee in the return of income. 9.1. The brief facts are that during the financial year ended 31 March 2007, the assessee had sold the property at Chandigarh for a total consideration of Rs. 2,74,73,00,000/-. Further, in the agreement to sell dated 1st September 2006, an amount of Rs. 2,72,98,00,000/- was allocated towards the Chandigarh land out of the aforesaid total consideration. In respect of the a....
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.... In the instant case, since the value as on 1 April 1981 was taken by the assessee on the basis of the report of a registered valuer, the AO did not have the power to make a reference under section 55A(b) of the Act. Accordingly, the AO's reference to the DVO is invalid even under section 55A(b) of the Act. 9.6. Our attention was also invited to the fact that the amendment made to section 55A by the Finance Act 2012 has been made effective from 1st July, 2012 and was accordingly not applicable to the year under consideration i.e. AY 2007-08. 9.7. Lastly, it was submitted that legal position was well settled on this issue. Our attention was invited to the decision of the jurisdictional High Court in the case of CIT vs Puja Prints, 360 ITR 697 (Bombay). In this decision, Hon'ble Bombay High Court has, after considering the said amendment, held that if a report of a registered valuer has been taken by the assessee, then the provisions of section 55A(a) only are applicable and section 55A(b) has no application, and further if the value determined by the DVO is lower that than claimed by the assessee, then the reference to the DVO is not valid. 9.8. Our attention was also invited to ....
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....e particularly judgment of Hon'ble Jurisdictional High Court. We have seriously pondered over the contentious issues. The issue before us is whether the AO has requisite powers under the law to make a reference to DVO in case he finds that the value of the impugned property as on 01.04.1981 as shown by the assessee in the return of income is more than the fair market value in the opinion of the AO. As per the Ld. Counsel, the AO does not have any such powers, especially in view of the judgment of Jurisdictional High Court. On the other hand, as per Ld. CIT -DR, the AO does have requisite powers under the law irrespective of the fact whether fair market value is expected to be more or less than the value claimed by the assessee in the return of income. 9.12. Before we apply our own analysis on this issue, we find it appropriate to refer to the judgment of Hon'ble Jurisdictional High Court in the case of CIT vs. Puja Prints (supra) 360 ITR 697. The relevant abstract of this judgment is reproduced below: "We find that Section 55A(a) of the Act very clearly at the relevant time provided that a reference could be made to the Departmental Valuation Officer only when the value adopted ....
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....ficer is entitled to refer the issue of valuation of the property to the Departmental Valuation Officer in exercise of its power under Sections 131, 133(6) and 142(2) of the Act is entirely based upon the decision of the Guwahati High Court in Smt. Amiya Bala Paul (supra). However, the Apex Court in Smt. Amiya Bala Paul (supra) has reversed the decision of the Guwahati High Court and held that if the power to refer any dispute with regard to the valuation of the property was already available under Sections 131(l), 136(6) and 142(2) of the Act, there was no need to specif ically empower the Assessing Off icer to do so in circumstances specified under Section 55A of the Act. It further held that when a specific provision under which the reference can be made to the Departmental Valuation Officer is available, there is no occasion for the Assessing Officer to invoke the general powers of enquiry." 9.13. We have gone through the above said judgment very carefully, and also compared it with the detailed arguments made by Ld. CIT-DR. It is noted by us that Hon'ble Jurisdictional High Court has also considered the amendment made under the law and held that the same is prospective and no....
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.... Jurisdictional High court, and therefore, respectfully following the same we hold that reference made by the DVO was bad in law and is held to be invalid and therefore, consequent to this, all further proceedings made by the AO in pursuance to such reference are also illegal, and therefore, the addition made by the AO on the basis of illegal reference and report of DVO is also illegal, and the same is hereby deleted. As a result Ground No.7 of the assessee's appeal is allowed on primary issue. At this stage, we refrain ourselves from going into the merits of the other arguments with respect to factual infirmities in the report of the DVO, since we have decided this issue on the primary ground itself. 10. Grounds No. 8 and 9 are not pressed and these are dismissed. 11. Ground No.10: In this ground the assessee has challenged the action of Ld. AO in adding a sum of Rs. 26,779/- towards in purchases as unexplained investment u/s 69 of the Act. In this regard, it was submitted by the Ld. Counsel that the assessee had transactions of more than Rs. 25 crores with the M/s Emcure Pharmaceuticals, and the assessee was able to reconcile majority of the transaction with its books of acco....
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....he AO to decide the same in terms of our directions as contained above. The AO shall decide this issue, and recomputed the amount of interest payable by the assessee, if any, keeping in view position of law as discussed above in juxtaposition of the facts of the case. Thus Ground no 11 is allowed for statistical purposes. 13. Ground No.12 (Additional ground): In this ground the assessee has sought the direction for the Ld. AO to reduce the interest income granted u/s 244A pertaining to A.Y.2003-04, amounting to Rs. 1,18,76,000/-, which was offered by the assessee in the return of income for u/s 2007-08; in view of the fact that it has also been assessed by the AO in assessment year 2005-06 vide order passed u/s 147 r.w.s.143(3) of the Act, thereby amounting to double taxation. 13.1. During the course of hearing, following facts have been narrated by the Ld. Counsel by way of facts sheet submitted to the Bench. "1. During the financial year relevant to AY 2005-06, the appellant had received an 'intimation dated 30 March 2004 issued under section 143(1)(a) of the Act, wherein interest under section 244A amounting to Rs. 1,87,81,254 was granted for AY 2003-04 (refer compilation pa....
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....rest amounting to Rs. 1,87,81,254 in the total income (refer compilation page nos. 133 to 140). 10. On appeal filed before CIT(A) against the aforesaid reassessment order for AY 2005-06, the CIT(A) in its order dated 7 August 2013 has held that the interest amounting to Rs. 1,29,50,156 which was finally determined for AY 2003-04 ought to be taxed in AY 2005-06 as was offered by the Appellant in the return of income filed in pursuance of the notice issued under section 148 of the Act. (refer compilation page nos 252 to 255) 11. Accordingly, the interest income of Rs. 1,18,76,000 which has been taxed in A.Y.2007-08 has also been taxed in A.Y. 2005-06." 13.2. In view of the above facts and circumstances, it has been requested by the Ld. Counsel that, as the interest income for A.Y.2003-04 has been offered to tax in A.Y.2005-06 as per the order of Ld. CIT(A), the amount of Rs. 1,18,75,551/- offered to tax in the return of income for A.Y.2007-08 and taxed as such in the assessment order dated 21.10.2011, ought not to taxed in A.Y.2007-08. 13.3. On the other hand, Ld. CIT- DR has supported the orders of lower authorities. With respect to admission of the additional ground, no serio....
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....Cookers Limited vs. ITO (ITA No.505/Mum/2004 (14 DTR 206) 14.2. We have gone through the submissions made and cases relied upon by both the sides. This ground being a legal ground is admitted for adjudication. 14.3. The brief facts are that the AO vide its order dated 5th February, 2010, passed under section 143(3) of the Act for the A.Y.2006-07, made an addition under section 145A of the Act to the closing stock amounting to Rs. 8,94,86,220/- on account of unutilized modvat credit. However, the same effect was not given to the opening stock of succeeding year i.e. A.Y.2007-08. 14.4. In our considered view, as the fairness demands and as per law, the value of closing stock of a particular year should be the opening stock of the next year. There can be no doubt or debate on this proposition. If this principal is not followed, it may give rise to absurd results, leading to excessive and unfair assessment of income in the hands of the assessee. Therefore, we direct the AO to adopt the value of closing stock of A.Y. 2006-07 as value of opening stock of assessment year 2007-08, in case the addition made by the AO in the closing stock of A.Y.2006-07 has attained finality. Accordingly,....
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....Arms Length Price on account of interest on outstanding receivable for Rs. 5,62,836/-. 18.1. The brief facts are that the TPO made adjustment to the Arm's Length Price relating to the interest outstanding receivable and quantified the same @ of 16% per annum. The assessee contested this matter before the DRP, who upheld the adjustment in principle, but reduced the rate of Prime Lending Rate (PLR) of India at rate of 13.25% of per annum. 18.2 Being aggrieved the assessee has contested this matter before the Tribunal. Before us Ld. Counsel has made detailed submissions. 18.3. It was submitted that the TPO erred in calculating delay in payment up till the date of realization of payment which falls in the subsequent year. It was submitted that interest on outstanding receivable can be calculated only for the delay during the relevant financial year 2007-08 i.e. in the scenario wherein the outstanding amount has been received during the year, the interest shall be calculated from the due date till the date of realization. In the scenario that the outstanding amount is received after 31st March 2008, the interest should be calculated from the due date till the last day of the relevant....
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....er as per the suggestions received from both the sides, the rate of interest should be LIBOR plus 150 basis points. 18.8. The next issue is to be decided is about the period, up to which adjustment on account of interest can be made to the income to the current year. 18.9. In this regard we find that this issue has been very well explained by the Mumbai Bench of ITAT in case of Tecnimont ICB House (supra), wherein it has been held that interest should be charged only up till the end of the F.Y. Thus, it is held that interest should be calculated from the due date till the date of realisation, if the outstanding amount has been received during the year. In case the outstanding amount has been received back after 31st March 2008, then interest will be calculated from the due date till the last date of this F.Y. i.e. 31st March 2008. We direct the AO to give effect to our directions, accordingly. Thus, Ground no.2 is partly allowed as in terms of our directions as stated above. 19. Ground No.3: In this ground, the assessee has challenged the action of Ld. AO in taxing an amount of Rs. 6,21,49,000/-being rental income from leased properties as 'Profits and Gains of Business or Profe....
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....eductible at source. The DRP further held that the assessee had not furnished details for the amount of Rs. 3,56,15,341. The assessee filed an application for rectification before the DRP. The DRP vide order dated 31 December 2012 rejected the same on the ground that the same are not rectifiable issues. Aggrieved by the same, the assessee company is in appeal before the Tribunal. 21.2. Before us, Ld. Counsel of the assessee has submitted as under: "The appellant respectfully submits that the DRP has erred in upholding the action of the AO and in validating the justification of the AO that the CIT(A) - TDS in its order dated 31 December 2009 for the AY 2007-08 has dismissed the appellant's appeal with regard to nondeduction of tax at source on clinical trial expenditure. The observation of the AO that the CIT(A)-TDS has dismissed the appellant's appeal with regard to nondeduction of tax on clinical trial expenditure is incorrect in as much as the CIT (Appeals) - TDS had directed the AO to verify the break-up of clinical trial expenditure and grant relief accordingly. Attention is invited to the order dated 30 March 2013 passed by the CIT(A)-TDS for the year under considerat....
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....ds treated as short term capital gains instead of long term capital gains. It has been further contended in this ground that the AO erred in applying the provisions of section 50 of the Act. 22.2. The brief facts are that during the year under consideration, the assessee had transferred its right to use the trademark/ license pertaining to consumer health brands (i.e., Listerine, Benadryl, Caladryl and Benylin) for a consideration of Rs. 2,10,60,10,000. The long term capital gain on account of the transfer of intellectual property rights was computed at Rs. 2,10,60,10,000. The AO, however, held that profit earned on sale of license/trademark was in the nature of short term capital gain as the said license/trademark has been recognized for the first time by the asessee in its books of account during the year under consideration. Thus, as the intangibles formed part of the block of assets during the AY 2008-09 and were sold in the same year, the gain is to be treated as short term capital gain. The assessee had submitted to the AO, extracts from the annual report of Parke Davis India Ltd to show that the said company was the licensed user of the said trademark/ license. 22.3. On re....
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....fer. In the instant case, the right to use the trademark/license pertaining to consumer health brands was held by the appellant for more than thirty-six months. Accordingly, the said right to use the trademark/ license pertaining to consumer health brands do not fall within the definition of a short term capital asset and accordingly the gain arising on the transfer of the said asset cannot be termed as a short term capital gain. The appellant submits that the rights to use the trademarks/ licenses were acquired by the appellant from Parke Davis India Limited in the scheme of amalgamation sanctioned by the Hon'ble Bombay High Court with effect from 1st December 2001 (refer compilation page nos 450 to 453), the said licenses were held by and used by the appellant for more than 3 years prior to the date of sale. Accordingly, there was no question of treating them as a short term capital asset and therefore no reason to charge them to tax as short term capital gains. The DRP has upheld that action of the AO on the ground that since the trademarks/ licences formed part of the block of assets and the same were transferred during the year under consideration, the gain arising therefr....
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.... capital gain arising from sale of these assets as rightly been treated as short term capital gains. 22.10. We have gone through the submissions of both the sides and material placed before us for our consideration and also gone through the applicable position of law and judgment relied by the parties. In our considered view the action of the Ld. AO in treating the impugned asset as short term capital asset is not sustainable, on law and facts, for following reasons: 22.11. First of all it is noted on facts, which remains undisputed, that the assets were not made part of block of assets. Thus, there arose no question of allowing any depreciation of these assets. In fact, no depreciation was ever claimed or actually allowed on these assets. Under these circumstances, in our view these assets cannot be hit by provisions of section 50. For the sake of ready reference, we find it appropriate to reproduce section 50 hereunder: "50. Notwithstanding anything contained in clause (42A) of s. 2, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed tinder this Act or under the Indian IT Act, 1922 (11 of 1922), the provisio....
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....ulfilled. It was further held that it is only on the fulfillment of these conditions that the provisions of section 50 get activated. In the present case it has already been held that on facts, both the mandatory conditions are found to be missing. Thus, action of lower authorities is contrary to law and facts. 22.14. Further, for the purpose of addressing the other arguments raised by the lower authorities to deny the benefit to the assessee company, we have examined this issue from another angle also. It is well settled law that under the Income Tax Law, the concept of de-facto ownership of the assets/ properties is followed. It is also well settled law that entries in the books of accounts do not necessarily determine taxability or otherwise of the transaction, in the hands of the assessee. One has to look into the real 'substance' of the transactions and not merely its 'form', to determine the taxability in the given facts of a case. 22.15. It is undisputed fact that the impugned assets were acquired by the assessee company way back on 1st December, 2001, on the amalgamation of Park Devis India Ltd. Pursuant to sanction of the amalgamation scheme by the High Court of Bombay o....
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....anies as appearing in the said statement with its books of account. The assessee requested the AO to provide a further breakup of the amount involved since the name of the parties did not appear in the statement. However, as further information was not available within the system, the AO held the amount remained un-reconciled and proposed an addition for the same. The assessee had submitted before the AO an affidavit affirming that all transactions pertaining to payments to insurance companies reported in the AIR were entered into the books of account of the assessee in accordance with the system of accounting followed by the assessee and denied that the assessee has entered into any transaction which has not been entered into or accounted for in its books of account. But AO made the addition. 23.2. On reference to the DRP, the DRP directed the AO to inquire into the matter with the departmental authorities as well as the insurance agencies and to carry out the proposed addition only if further verifiable and incriminating material is obtained against the assessee. However, as the assessment was getting time-barred, in the final order, the AO sought to make an addition without obt....
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....ew, the action of Ld. AO in making the addition in this manner was highly unfair and unjustified. When the assessee had provided complete details, then onus shifted upon the AO to show that what payments have been made by the assessee over and above what has been reflected by it in the books of accounts. The AIR statement does not even contain names of the parties. Under these circumstances, we find it appropriate to send this issue back to the file of the AO with the direction that the AO shall provide to the assessee complete information and adverse material with all requisite particulars. In response, the assessee shall provide complete books of accounts and requisite details and documents and other evidences to show that the amount reported in the AIR, belonging to the assessee, are duly recorded in the books of accounts. If it is pointed out by the assessee that certain transactions in the AIR statement do not belong to the assesse, then the AO should provide requisite details and evidences to the assessee establishing that impugned transactions do belong to the assessee. 23.7. We clarify that in our considered view, the primary onus is upon shoulders of the AO to show that t....