TaxTMI 
TaxTMI 
2016 (1) TMI 132
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....O") out of total upfront fees expenditure amounting to Rs. 20,100,000 alleging that the same relates to succeeding years. 2. The Ld. CIT(A) has erred on the facts and circumstances of the case and in law, in confirming the adjustment on account of provision for gratuity amounting to Rs. 9,893,845 and provision for leave encashment amounting to Rs. 20,066,428 while computing 'book profits' for the purposes of Section 115JB of the Act holding that the said provisions were unascertained, without appreciating the fact that the said provisions have been made on the basis of actuarial valuation. 3. The Ld. CIT(A) has erred on the facts and circumstances of the case and in law, in confirming the adjustment on account of provisions for bad debts amounting to Rs. 64,363,560 while computing 'book profits' for the purposes of Section 115JB of the Act. 4. The Ld. CIT(A) erred on the facts and in circumstances of the case and in law, in upholding the adjustment of Rs. 12,07,218/- made by the Transfer Pricing Officer to the value of international transactions of export of guar gum and pet chips without appreciating the business rationale for undertaking the said transactions by the Appe....
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....was made to page nos. 235 to 286 of the assessee's paper book. It was also stated that the issue relating to the disallowance of gratuity has been admitted by the Hon'ble Jurisdictional High Court vide order dated 02.07.2012 in ITA No. 739/2010. 7. The ld. DR in his rival submissions although supported the orders of the authorities below but could not controvert the aforesaid contention of the ld. Counsel for the assessee. 8. We have considered the submissions of both the parties and carefully gone through the material available on the record. It is noticed that an identical issue having similar facts was a subject matter of the adjudication for the assessment year 2001-02 in assessee's own case in ITA No. 5722, 5663 & 4989/Del/2004 wherein relevant findings have been given in paras 33 & 34 of the order dated 31.12.2009 which read as under: "33. We have carefully considered the rival submissions in the light of material placed before us. It has been the contention of the assessee right from the beginning that a cumulative sum of Rs. 97,84,178/- (Rs.68,23,350/- on account of gratuity and Rs. 29,60,828/- on account of leave encashment) was debited to the Profit & Loss account. Ou....
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....f the assessee has to be accepted. The AO is directed to delete the addition made on account of provision for leave encashment amounting to Rs. 29,60,888/-. To conclude our findings on this ground are that (i) Opening balance standing to provision for staff benefits, if not debited to the P&L account of the year under consideration, could not be considered for addition while computing profit u/s 115JA. (ii) Provision for gratuity being not ascertained liability was to be added while computing book profit u/s 115JA. (iii) Liability of Rs. 29,60,828/- on account of provision for leave encashment being a liability based on actuarial valuation is to be considered ascertained liability hence deductible while computing book profit u/s 115JA. This ground is partly allowed." 34. There is no disparity on facts. The contents of the learned counsel for the assessee is that actuarial report is on the record, therefore, the provisions should not be treated as unascertained liability. This report has not been relied upon by the revenue authorities below. There are specific defect in the report. Taking into consideration the findings of the ITAT in assessment year 2000-01, defects in ....
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....he assessee had exported pet chips and guar gum to Pepsi World Trade (PWT) who in turn sold the goods to PWT at the same price at which PWT sold them to third party customers. The explanation of the assessee was that the vendors in India were identified by the end customers in the US and the price/other terms of the transactions were also negotiated by the end customers and the sellers without any intervention by either the assessee or PWT. It was further explained that as the customer wanted a US party interposed in between, PWT agreed to act as the importer. However, the TPO observed that the TP reports revealed that PWT had incurred losses on these transaction as it had sold the goods at the purchase price. He also observed that it had not even recovered the cost incurred on storage, transportation and interest. He further observed that the assessee had acted as a facilitator and provided limited service of getting the documents prepared and performed related coordination with the sellers. The TPO observed that the exact nature and context of the transactions were not clear from the TP report and no reason had been offered to explain the purpose of incurring the losses by PWT an....
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....a) Limited 28.93 2. Indiacom Limited 6.09 3. Interads Limited 2.18 4. International Travel House Limited 4.11 5. N I S Sparta Limited 9.32 6. Ujjwal Limited 2.24 7. Anusha Air Travels Ltd. 0.44 8. Hindustan Cargo Ltd. 22.40 9. Shanthi Sales Ltd. 1.72 10. M C S Ltd. 7.91 Arithmetic Mean 8.53 14. Accordingly, the arithmetic mean of the comparable companies worked out at 8.53% was considered as the arm's length mark-up to be applied on the costs incurred on providing support services. The assessee raised the following objections: "1. PWT has not earned any profits from the transaction; so there is no intention to shift profits out of India; Circulars 12 and 14 of 2001 state that the true purpose of the transfer pricing laws is to check such shifting of profits; 2. The loss incurred by the assessee is only Rs. 11 lakhs and this is on account of forex fluctuations; if the value of Indian Rupee had moved in the reverse direction the assessee would have earned a forex gain; and 3. The assessee was benefited by making such exports by getting star trading house status which is linked to the export turnover amoun....
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....osses and entering into these transactions, then it should have been substantiated in the contemporaneous documentation maintained under Rule 10D. And in such a situation the cost benefit matrix would be entirely different. Moreover, the value of these transactions is a small part of the total exports made this year and even without these transactions it could have obtained the star trading house status." 16. The TPO worked out the Arm's Length Price adjustment to be added to the income of the assessee at Rs. 12,07,218/- by observing as under: "The assessee in its capacity as a service provider should be recovering the costs incurred in procuring the goods since this is only a pass through entity and a markup of 8.53% on the costs incurred in providing the services. The computation of Arm's Length Price is given as under: Losses incurred on providing the service (A) (that portion of the price which was not reimbursed) Rs.1,111,397 Costs incurred in providing the service (B) (Value Added Expenses) Rs.88,290 Arm's Length Price (A+108.53% of B) Rs.1,111,397 +Rs.95,821 = Rs. 1,207,218 The Arm's Length Price in respect of the service provided by the ass....
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....s under: "In the present case, the TPO after receiving a reference from the AO on the basis of his prima facie view, examined various documents and then came to form a considered view that the ALP in respect of the international transaction of the appellant needs to be recomputed. As a result of such a view, TP adjustments of Rs. 12,07,218 was proposed by the TPO. The AO also concurred with the findings of the TPO and came to hold the same considered view in respect of the international transactions. Therefore, I do not find any infirmity in the reference made by the AO to the TPO and subsequent determination of ALP by the TPO and its acceptance by the AO. In view of the foregoing analysis, I am of the considered view that the AO did not commit an error either at the time of making a reference to the TPO or at the time of passing the assessment order concurring with the findings of the TPO." 19. Now the assessee is in appeal. The ld. Counsel for the assessee submitted that the AO/TPO were wrong in stating that the losses incurred by the assessee on export of guar gums and pet chips were unjustified and in violation of the arm's length standard and not appreciating the fact that ....
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....erial available on the record. In the present case, it is an admitted fact that the loss incurred by the assessee was only on account of foreign exchange fluctuation as the commodities were sold to the AE at the same rate at which these were purchased from the local market. On a similar issue the ITAT Delhi Bench in the case of DCIT Vs Global Vantedge P. Ltd. in ITA Nos. 1432 & 2321/Del/2009 and 116/Del/2011 (supra), held that adjustment on account of arm's length price of international transactions cannot exceed the amount received by the Associated Enterprises from the customer and the actual value of international transactions i.e. amount received by the assessee in respect of international transactions. The said decision of the ITAT Delhi Bench has been affirmed by the Hon'ble Jurisdictional High Court vide order dated 14.03.2013 in ITA Nos. 1828 & 1829/2010 and 1254/2011 against the said order of the Hon'ble High Court. The Special Leave Petition (SLP) of the Revenue had been dismissed by the Hon'ble Supreme Court vide order dated 02.01.2014 in CC No. 22166 of 2013. The ITAT Delhi Bench, 'I-2', New Delhi in the case of HCL Technologies BPO Services Ltd. Vs ACIT, CC-2, New Delh....
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....not claimed any depreciation. When the assessment order in question was in the assessment year 1997-1998, bringing down the value of the asset purchased by showing notional depreciation for the year 1995-96 and 1996- 97 and allowing the depreciation on the written down value in this manner would be clearly wrong when the depreciation in the previous year has not been claimed at all. Thus, the question raised by the Revenue clearly becomes academic and does not arise for consideration." 23. The aforesaid contention of the ld. Counsel for the assessee was not controverted by the ld. DR. 24. After considering the submissions of both the parties and the material available on the record, it is noticed that this issue has been decided by the Hon'ble Jurisdictional High court vide aforesaid order dated 09.03.2011. Therefore, in view of the ratio laid down by the Hon'ble Jurisdictional High Court in assessee's own case, we do not see any merit in this ground of the departmental appeal. 25. Vide Ground No. 2, the grievance of the department relates to the allowability of the expenditure u/s 37(1) of the Act. 26. The facts related to this issue in brief are that the assessee incurred ce....
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....re of expenditure incurred by the assessee in the said premises and agree with the view of ITAT that the expenditure incurred was for erecting temporary wooden structure etc. Such an expenditure would be revenue in nature even if the depreciation thereupon is to be allowed, as per Appendix-I to the Income Tax Rules. We may note herewith that the ITAT has stated that expenditure incurred on lease hold premises was in respect of construction of walls, partition and plastering of walls? It was a specific case put forward by the assessee that these structures were temporary in nature and in fact they were wooden structure. Even if, there is no dispute as to whether construction of wall was wooden or brick wall, it is not in dispute that the same was purely temporary erection, and thus, would qualify for 100% depreciation as per Appendix-I. These are pure findings on facts and no interference therein is called for." 30. In view of the above, we do not see any merit in this ground of the departmental appeal. 31. The next issue vide Ground No. 3 relates to the deletion of addition of Rs. 8,02,000/- being 1/10th of preliminary expenses. 32. The facts related to this issue in brief a....
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.... record arrived at by the Income Tax Appellate Tribunal as well that the expenses incurred were on the registration of the company and thus incurred before the commencement of business operation. On this basis they were amortized for a period of ten years and 1/10th of the expenditure reached Rs. 8,02,000/- was claimed in this year. We also find that in the subsequent assessment year, the expense was allowed by the ITAT against which no appeal was preferred. 3. In these circumstances, there is no reason to disallow the same as it is clear that the Revenue had accepted to amortize the aforesaid expense over a period of ten years and, therefore, for all these ten years, the expenditure is eligible for deduction under Section 35D of the Act. No question of law arises." 36. Since this issue has been settled by the Hon'ble Jurisdictional High Court, we, therefore, do not see any merit on this issue in the appeal of the department because the year under consideration falls in the period of 10 years for which the amortization of the preliminary expenses has been allowed u/s 35D of the Act. 37. Last issue vide Ground No. 4 relates to the deletion of disallowance of advertisements exp....