TaxTMI 
TaxTMI 
2016 (1) TMI 132
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.... Assessing Officer (hereinafter referred to as "Ld. AO") 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 t....
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....for the assessment year 2001-02 in ITA Nos. 5722, 5663 & 4989/Del/2004 vide order dated 31.12.2009. A reference 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.68,23,35....
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.... to ceiling on accumulation not being a contingent liability, provision made thereof is deductible. Therefore, this claim of 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 aut....
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....sses incurred by the assessee on sale of pet chips and guar gum were unjustified and in violation of the Arm's Length Standard. The TPO pointed out that the 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....
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....nctional and risk similarity with the assessee's procurement support activity. Their names and profit margins were as under: S.No. Companies Name 2002 1. I G E (India) 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 flu....
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....ator. Such a characterization is contrary to its true economic role in respect of these transactions. 8.4 As regards the benefit of getting star trading house status, it is observed that this fact does not find mention in the TP report. If this was the motivating factor for booking losses 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....
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....fore the Revenue authorities would tantamount to denial of justice." 18. However, the ld. CIT(A) by following the decision of the ITAT Bangalore Special Bench in the case of M/s Aztec Software & Technology Services Ltd. Vs ACIT, Circle- 11(1), Bangalore in ITA Nos. 584, 585/Bangalore/2006 dated 12.06.2007, confirmed the addition made by the AO by observing as 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 ....
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....the Hon'ble Delhi High Court and the SLP has been dismissed by the Hon'ble Apex Court. 20. In his rival submissions the ld. DR strongly supported the orders of the authorities below and reiterated the observations made in the order of the TPO as well as the impugned order. 21. We have considered the submissions of both the parties and carefully gone through the material 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 orde....
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....iation allowed by the CIT(A) as well as ITAT. The contention of the Revenue is that explanation 5 to Section 32(i) of the Income Tax, which is inserted with effect from 01.04.2002 was clarificatory in nature and therefore the Assessing Officer has rightly disallowed the depreciation. Fact remains that in the previous years, i.e., in the year 1995-1996 and 1996-97, the Assessee had 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.....
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....his was confirmed by the CIT(A), however, the ITAT has reversed the aforesaid finding holding the expenditure to be Revenue in nature. The finding of fact is a direction that improvement were made in the lease premises by erecting temporary wooden portion and structure, and therefore, the same were revenue in nature and even eligible for deduction under Section 37(i) of the Act. We have examined the nature 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 er....
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.... No. 574/2007 before the Hon'ble Jurisdictional High Court wherein vide order dated 09.03.2011, their lordships in paras 2 & 3 observed as under: "2. In so far as first is concerned, the Assessing Officer disallowed the amortization of the expenses of Rs. 8,02,000/- under Section 35D of the Income-tax Act. The Assessing Officer wrongly presumed that the expenses incurred were the fee payable on account of increase in share capital. It is a matter of 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 Sect....