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2009 (7) TMI 1270

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....d partly confirmed by CIT(A)-VI Ahmedabad vide order dated 10-01-2008. First we will deal with the quantum appeals in ITA No. 846/Ahd/2006 and 157/Ahd/2007 (for the assessment years 2002-03 and 2003-04) 2. The first common issue in these appeals of the assessee is as regards to the orders of CIT(A) in confirming the thrusting of depreciation, when it was not claimed by the assessee. The assessee has raised the following grounds in respective appeals:- "1. The learned CIT(Appeals)-VI, Ahmedabad erred in confirming the thrusting of depreciation, when it was specifically not claimed by the assessee." "1. The learned CIT(A) has erred in law and on facts in confirming the action of AO in reducing the claim of depreciation from Rs. 37,08,10,879/- to Rs. 31,05,46,778/-." 3. At the outset, it was brought to our notice that this common issue is recurring in every year and in earlier assessment year 2001-02 in ITA No.3528/Ahd/2004, the "D" Bench of this Tribunal vide order dated 16-05-2008, following the Special Bench of this Tribunal i.e., the Ahmedabad Special Bench in the case of Vahid Paper Converters v. ITO, Vapi Ward-4, Daman (2006) 98 ITD 165 (Ahd) (SB), wherein under para-5 ....

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....s dismissed." 4. Now before us both the Ld. Counsel for the assessee and the learned DR agreed that the issue is covered against the assessee and in favour of the Revenue. We find from the Tribunal's order for assessment year 2001-02, which has confirmed the orders of the lower authorities allowing the depreciation. Accordingly, in these two assessment years, the CIT(A) as well as the Assessing officer has allowed depreciation on correct amount of WDV as worked out. Before us no mistake is pointed out in the computation of WDV and accordingly we uphold the order of CIT(A). This common issue of the assessee's appeals is dismissed. 5. The next issue in ITA No.846/Ahd/2006 of assessee's appeal is as regards to the order of CIT(A) confirming the disallowance of interest and administrative expenses by invoking the provisions of Section 14A of the Act in respect to the exempt income. For this, the assessee has raised the following ground:- "2. The learned CIT(Appeals)-VI, Ahmedabad erred in confirming disallowance of interest and administrative expenses by invoking provisions of section 14A of the Act in regard to dividend income." 6. We have heard the rival contentions on this is....

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.... for consumption of steam at the rate of Rs. 660/- per MT. It appears that the assessee wants to say turbine in itself amounts to establishing a new undertaking. This does not appeal to reason because turbine in itself can never be held to be a new power plant. A new power plant will have several things like provision for supply of steam, transmission lines, controlling towers and other items. Simply saying that a new turbine is a new industrial undertaking means that if a new engine is installed in an old body of a car, the same is converted into a new car. This example has been given for simple and logical understanding of the situation. The assessee has vehemently claimed at the time of assessment that supply of power is not a part of the power plant then turbine in itself can never be said to be a power plant because turbine alone can never be a unit of generating power. As discussed earlier, as per the C.A's certificate which has been reproduced in earlier pat of the order, which was taken out of assessment order, that this power plat was an old plant. Apart from that it is apparent that turbine in itself cannot be said to be a new power plant, therefore, the claim of deductio....

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....he value of the boiler (pre-existing and pre-used is Rs. 1476600/- (purchased secondhand on 9-11-98). It was also contended that the boiler is not a part and parcel of new plant and machinery. The AO did not agree with the contentions of the assessee that the turbine has to be treated as an independent power generating unit and ultimately he held that new power plant has been established by way of transfer of old previously used machinery and accordingly did not allow the deduction u/s 80-IA in respect of this power plant. The assessee went in appeal before the CIT(A). The CIT(A) also confirmed the finding of the AO by holding as under: "4.1 I have considered the findings of the AO, submissions and arguments advanced by the Ld. Counsel for the appellant during the course of assessment as well as appellate proceedings and case laws relied upon on the issue. I find that no industrial undertaking came into existence within the provisions of Section 80IA by transferring the boiler or by installing new machinery for the purpose of generation of power for factory consumption. I find that this is nothing but an exercise to claim deduction to reduce taxable profits. I also find that the....

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....ertaking is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation 2 to this sub-section states that where in the case of an undertaking, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with. This is an undisputed fact that in this case the assessee has not transferred the existing boiler to the new undertaking for generating the power but the contention of the assessee is that the same very boiler is being used for supplying the steam to both the turbine which was already in existence and the new one established by the assessee. The claim of the assessee is that the new turbine established by him itself is a new undertaking engaged in the business of generating the power. New turbine itself cannot generate power until and unless the steam is provided to it through boiler. An....

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....s regards to the disallowance of deduction u/s.80IB of the Act on account of DEPB credit. The assessee has raised the following grounds in respective appeals are under:- "4. The learned CIT(Appeals)-Vs, Ahmedabad, erred in confirming the disallowance of DEPB income while computing deduction u/s.80IB of the Act, forgetting that the Assessing officer did not ask the assessee-company to prove that DEPB was on export of goods produced in the plant eligible to 80IB relief." "3. The learned CIT(A) has erred in law and on facts in confirming the action of AO in denying the deduction u/s.80IB of the Act on DEPB Credit of Rs. 4,89,81,959/-." 11. The briefly stated facts (in assessment year 2002-03) are that the assessee has claimed deduction u/s.80IB of the Act on PAA plant. During the course of assessment proceedings, the Assessing officer noticed from the details filed by the assessee that it had wrongly claimed DEPB benefit as a part of the profit for computation of deduction u/s. 80IB of the Act. The assessee on query from the AO replied that the DEPB incentives of Rs. 3,98,98,792/- has been received on account of export of products manufactured in the plant which is eligible for....

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....T (2007) 293 ITR 520 (P&H) and argued that the Hon'ble High Court has clearly stated that for application of the words "derived from" there must be a direct nexus between the profits and gains and the industrial undertaking. According to him, the income of the assessee from DEPB is not eligible for deduction in view of language used in section 80IB of the Act. We find that the Hon'ble High Court in the case of ELTEK SGS P. Ltd. (supra) has held as under:- "This issue, particularly in relation to duty drawback, came up for consideration in CIT v. India Gelatine and Chemicals Ltd. ([2005] 275 ITR 284 (Guj). While considering the object of the duty drawback scheme, the Gujarat High Court explained it in the following terms (page 291): "The object of the duty drawback scheme is to reimburse exporters for tariffs paid on the imported raw materials and intermediates and Central excise duties paid on domestically produced inputs which enter into export production. Customs duties and excise duties on inputs raise the cost of production in industries and thereby affect the competitive of exports. Therefore, exporters need to be assisted for neutralizing the escalation in their ....

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....of the assessee and one High Court i.e., Hon'ble Punjab and Haryana High Court against the assessee, applying the case law of Hon'ble Apex Court in the case of CIT v. Vegetable Products Ltd. (1973) 88 ITR 192 (SC), the beneficial view, which is in favour of the assessee is to be adopted. Respectfully following, the above, we allow the claim of the assessee and this common issue in both the appeals of the assessee is allowed. 13. The next issue in ITA No.846/Ahd/2006, the appeal of the assessee is as regards to the disallowance of deduction on the amount of deduction u/s 80IA and 80IB of the Act to be reduced while calculating the deduction u/s 80HHC of the Act. The assessee has raised the following ground in this appeal :- "5. The learned CIT(Appeals)-Vs, Ahmedabad erred in confirming that the amount of deduction u/s.80IA and 80IB be reduced while calculating the amount of deduction u/s.80HHC and in upholding both calculation of 80HC relief by Assessing officer." 14. At the out set it is noticed that the issue is squarely covered by the decision of Special Bench of this Tribunal of Madras Benches in the case of ACIT v. Rogini Garments (2007) 294 ITR 15 (AT), (Chennai) ....

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....ure is to act upon the sentetia legis. There is no estoppel against the statute. We have gone through the circular relied on by learned counsel for the assessee. It nowhere suggests that more than 100 per cent deduction on the same profit can be granted to the assessee under various sections enumerated in Chapter VI-A. Section 80HHC is part of Chapter VI-A. The hon'ble jurisdictional High Court in the case of CIT v. Sharon Vaneers P.Ltd.[2007] 294 ITR 18 (Mad.) (T.C.(A) No.62 of 2004 dated February 26, 2007), has made it clear that it is not correct to say that section 80HHC of the Act is a self-contained provision. The deduction cannot be allowed ignoring the restrictive clause contained in section 80-IA(9). The restrictive clause in section 80-IA makes it abundantly clear that wherever deduction under any other sections of Chapter VI-A(C) is claimed, the computation will be subject to the restrictions laid down in section 80-IA(9). It precludes pro tanto, all the deductions of such profits and gains claimed under Chapter VI-A(C). Section 80HHC is a part of Chapter VI-A(C). It is not a self-contained provision. There is absolutely no ambiguity on this aspect. We are therefo....

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....edabad, erred in confirming that excise duty is part of total turnover for the purpose of calculation of deduction u/s.80HHC of the Act." 16. At the out set, it is noticed that the issue is squarely covered in favour of the assessee and against the Revenue by the decision of Hon'ble Apex Court in the case of CIT vs. Lakshmi Machine Works (2007) 290 ITR 667 (SC), wherein the Hon'ble Apex Court has held as under:- "6. The learned CIT(Appeals)-V, Ahmedabad erred in confirming that excise duty is part of total turnover for the purpose of calculation of deduction u/s.80HHC of the Act." "In fact, in Civil Appeal No.4409 of 2005, the above proposition has been accepted by the Assessing Officer [See : page No.24 of the paper book], if so, then excise duty and sales tax also cannot form part of the "total turnover" under section 80HHC(3), otherwise the formula becomes unworkable. In our view, sales tax and excise duty also do not have any element of "turnover" which is the position even in the case of rent, commission, interest etc., It is important to bear in mind that excise duty and sales tax are indirect taxes. They are recovered by the assessee on behalf of the Government. There....

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....ssee must borrow capital and the purpose of the borrowing must be for business which is carried on by the assessee in the year of account. What clause (iii) emphasizes is the user of the capital and not the user of the asset which comes into existence as a result of the borrowed capital unlike section 37 which expressly excludes an expense of a capital nature. The Legislature has, there4fore, made no distinction in section 36(1)(iii) between "capital borrowed for a revenue purpose" and "capital borrowed for a capital purpose". An assessee is entitled to claim interest paid on borrowed capital provided that capital is used for business purpose irrespective of what may be the result of using the capital which the assessee has borrowed. Further, the words "actual cost" do not find place in section 36(1)(iii) of the 1961 Act which otherwise find place in sections 32, 32A, etc., of the 1961 Act. The expression "actual cost" is defined in section 43(1) of the 1961 Act which is essentially a definition section which is subject to the context to the contrary. And in the case of Munjal Sales Corporation (supra), wherein the head-note is extracted herein:- "Under the Income-tax Act, 1961....

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.... income of the appellant." "13. Alternatively and without prejudice, even as per the provisions of Taxation Laws (Second Amendment) Act, 2005, the said DEPB sale proceed is eligible for deduction u/s.80HHC of the Act." "14. Alternatively and without prejudice Ld. CIT(A) failed to appreciate that the said sale proceeds of the DEPB license are covered by 28(iv) of the Act and therefore deduction u/s.80HHC of the Act ought to have been allowed fully on the same." "15. Both the lower authorities have passed the respective orders without properly appreciating the fact and that they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order." 20. At the outset, it is noticed that this issue relates to computation of deduction u/s.80HHC vis-à-vis the income from DEPB. The Ld. Counsel for the assessee contended that this issue can be restored back to the file of the AO in view of the amendment as brought by Taxation Laws (Amendment) Act, 2005 w.e.f 1-4-1998 by virtue of which clause (iiid) is inserted in Section 28 and also Second , t....

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.... by the appellant as the same is falling within the parameters of transfer pricing laid down under the scheme of the Act." "9. Alternatively and without prejudice, the learned CIT(A) has erred in law and on facts in confirming the order of the Additional Commissioner of Income Tax acting as Transfer Pricing Officer which is without jurisdiction and against the express provisions of law inasmuch as Additional Commissioner of Income Tax could not have acted as transfer pricing officer." 22. The facts of the case relating to this ground are common in both the appeals. We, therefore, are considering the facts of the AY 2002-03, which is a lead year. The brief facts are that the AO during the course of assessment proceedings referred the International Transactions to the Transfer Pricing Officer (TPO in short), Transfer Pricing-III, Mumbai u/s 92CA(1) of the Act. The TPO after hearing the assessee passed an order u/s 92CA(3) of the Act on 11-02-2005 wherein he has compared the transactions of the assessee with that of the Associate Enterprise (AE in short). The relevant facts given in para-4 of the TPO's order dated 11-02-2005, which is reproduced in the assessment order, is being ....

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....dering the above facts the explanation offered by the assessee is rejected and upward adjustment to the sales to the extent of Rs. 2,02,39,798/- as detailed in Annexure-1 to this order is made. Accordingly, the assessee's income will get increased by Rs. 2,02,39,798/- on account of Transfer Price adjustment." The AO has simply made addition based on the order of the TPO. Aggrieved, the assessee preferred appeal before CIT(A). It is to be mentioned here that the assessee adopted the Comparable Uncontrolled Price Method (CUP in short) for the purposes of computation of Arm's Length Price. Before the CIT(A) the assessee has made general submissions like the price charged to the AE is less than that to the non-AEs. It was also submitted that in many of the cases the sales made to AE are compared with the sales made to under-developed countries and in such cases margins are more due to various risks involved. The assessee also submitted that the AEs have not been making profit for quite some time and for this it has given data that one of the AEs i.e. Atul Europe Ltd. (AEL) has negative net worth of GBP42840 as on 31-03-2003 and its losses for the years 1998-99, 1999-2000 and 2000-200....

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....quantity sold to AE is 156950 kg. @ Rs. 64.27 while the quantity sold to Non-AE is much higher i.e. 334720 kg. at much higher rate of Rs. 73.33 per kg. These few instances show that the appellant's arguments that the AE was charged at less rate because of higher quantity sold is absolutely misplaced, misleading and beyond the facts of the case. In the case of other product also, when quantities are comparable, the rate charged from AE are much less. In such circumstances, the onus was to the appellant to prove with proper evidence that the rate charged from AE was at arm's length and no adjustment was required. The appellant has not produced an evidence for the factors mentioned for charging less price from AE. Considering these facts and circumstances, TPO and AO were justified in making upward adjustments in the profit of the appellant on the basis of arguments given in the order. Accordingly addition of Rs. 2,02,39,798/- is hereby confirmed and the ground of the appellant is hereby dismissed." 23. Aggrieved, the assessee preferred appeal before us. Before us, the learned counsel for the assessee Shri J. P. Shah argued that without prejudice to other contentions, only the net a....

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....usted to account for differences, if any, between the international transaction and the comparable uncontrolled transactions. He further stated that such adjustments are provided by 10B in respect of almost all the methods of determining arm's length price. Now, if Annexure-I to TPO's order under sec.92CA(3) is seen, no manner of adjustment is done in spite of the fact that it was pointed out that (1) associated enterprises are big whole-sellers who have to purchase, store and supply the dyes manufactured by the assessee further in highly developed countries in which both the AE's are operating, and thus, the prices at which the sale is made to them cannot be compared with the sale prices in under developed or developing economies nor can they be compared with the prices charged by the assessee to direct customers in the same region or cannot be compared to the prices charged to the stray customer who comes to the assessee when the supply position in his region is precarious or to the customer who is in all likelihood not likely to return to the assessee with a repeat order. (2) The rational of the entire transfer pricing chapter is that instead of this country getting the taxes, s....

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....decision in Sony India (P) Ltd. Vs. C.B.D.T. supports this contention of the assessee. Now, the fact of the matter is, A.O. did not give any such notice, and therefore, his order is bad. He also contended that more Gujarat High Court in decisions reported at (2001) 251 ITR 541, (2002) 257 ITR 297 and (2002) 257 ITR 460 has held that the Assessing Officer is not entitled to second innings. Further, incurable injustice will befall the assessee if it is told now that let the Department examine your matter of 2001 over again in the year 2009. In the submission of the assessee, if such is going to be the result, the interest of justice will be better served by quashing the bad order rather than by giving a second innings to the Assessing Officer, who did not abide by the provision of law and passed an order without even giving a show cause notice to the assessee. The submission of annulling rather than giving second innings to A.O. is supported by following decisions - (1) CIT vs. Shamlal (1981) 127 ITR 816 (P&H) as also the Delhi Tribunal's decision in a transfer pricing matter by the name Mentor Graphics (Noida) (P) Ltd. vs. D.C.I.T. (2007) 109 ITD 101 wherein on page 145, the learne....

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.... Finance Act,2001 introduced Sections-92A to 92F with a view to provide a detailed statutory framework to calculate and compute reasonable, fair and equitable profits and the taxation thereto in India in the cases of multinational enterprises having its operations spread over large number of nations. According to him, the new mechanism provided by the Finance Act, 2001 is in respect to computation of income of an international transaction having regard to a Arm's Length Price. The mechanism also provides for finding out the true and correct profit arising from the transactions with the Associate Enterprises (AE for short) in order to find out the Arm's Length Price in respect of transactions with the AE. The legislature has also provided mechanism as well as prescribed methods for the purpose of such calculation. He contended that before coming to the methods per se, it may be clarified that it is the assessee's right to choose the best applicable method for the purpose of calculation of Arm's Length Prices and the same cannot be disturbed by the TPO unless he satisfies the conditions prescribed under Sec.92C(3) of the Act. Under the scheme of the Act, the TPO is re....

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....counsel for the assessee also submitted that the assessee, during the course of the assessment proceedings, has given reasons for variations in the price charged to the AE's and Non-AE's where the price charged to the AE's is less than that charged to the Non-AE's. A chart showing such instances is annexed hereto and marked as Annexure A to this submission. The entire correspondence is at pages 34 to 111 of the paper book - II. He contended that the TPO has not considered the reasons given by the assessee in true spirits. She should have applied her mind for each of the reasons given and that in many of the cases the sales made to AE's are compared with the sales made to underdeveloped countries. He contended that the margins in such cases are more due to various risks involved in dealing with underdeveloped countries. The assessee has also submitted that, the AE's have not been making profits for quiet some time. In fact one of the AE's i.e. AEL has negative net worth of GBP421840 as on 31-03-2003. Its losses for the years 1998-1999, 1999-2000 and 2000-2001, are GBP203117, GBP30538 and GBP64838 respectively. For the years 2001-2002 and 2002-2003 AEL has made nominal profits of GBP....

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....ied. Now, both these margins i.e. wholesale discounts and political risks vary from party to party and country to country. It was submitted that in African Countries where high political uncertainty is there, the prices are obviously higher compared to the prices charged to a highly developed nations where law and order and political stability are there. However this subjective discounting factor cannot be rejected by the ld. TPO without bringing cogent material on record. * The Learned TPO contended that the appellant has not placed on record the details of demographic sales and quantity of sales to non-AEs. This is factually inaccurate. The appellant has given complete information to this effect and all these charts are once again placed before Your Honours at Annexure B to this submissions. * The appellant therefore most respectfully submits that the only reason why the Learned TPO has rejected its CUP method was on the ground that the necessary information with respect to exports to AEs and non-AEs is not available. However since the information was already available, this ground for rejecting the CUP method goes away and therefore the method adopted by the appellant may ....

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....ternational transactions and definitions of certain expressions occurring in the said sections. 55.4 The newly substituted section 92 provides that income arising from an international transaction between associated enterprises shall be computed having regard to the arm's length price. Any expense or outgoing in an international transaction is also to be computed having regard to the arm's length price. Thus in the case of a manufacturer, for example, the provisions will apply to exports made to the associated enterprise as also to imports from the same or any other associated enterprise. The provision is also applicable in a case where the international transaction comprises only an outgoing from the Indian assessee. 55.5 The new section further provides that the cost or expenses allocated or apportioned between two or more associated enterprises under a mutual agreement or arrangement shall be at arm's length price. Examples of such transactions could be where one associated enterprise carries out centralized functions which also benefit one or more other associated enterprises, or two or more associated enterprises agree to carry out a joint activity, such as r....

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....are determined by the associated enterprise. An illustration of such a transaction could be where the assessee, being an enterprise resident in India, exports goods to an unrelated person abroad, and there is a separate arrangement or agreement between the unrelated person and an associated enterprise which influences the price at which the goods are exported. In such a case the transaction with the unrelated enterprise will also be subject to transfer pricing regulations. 55.9 The new section 92C provides that the arm's length price in relation to an international transaction shall be determined by (a) comparable uncontrolled price method; or (b) resale price method; or (c) cost plus method; or (d) profit split method; or (e) transactional net margin method; or (f) any other method which may be prescribed by the Board. For the present, no additional method has been prescribed. One of the five specified methods shall be the most appropriate method in respect of a particular international transaction, and shall be applied for computation of arm's length price in the manner specified by the rules. Rules 10A to 10E, which have been separately notified vide S.O. 808(E), d....

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...., the Assessing Officer may reject the price adopted by the assessee and determine the arm's length price in accordance with the same rules. However, an opportunity has to be given to the assessee before determining such price. Thereafter, as provided in sub-section (4) of section 92C, the Assessing Officer may compute the total income on the basis of the arm's length price so determined by him. 55.12 The first proviso to section 92C(4) recognizes the commercial reality that even when a transfer pricing adjustment is made under that subsection, the amount represented by the adjustment would not actually have been received in India or would have actually gone out of the country. Therefore it has been provided that no deductions under section 10A or 10B or under Chapter VI-A shall be allowed in respect of the amount of adjustment. 55.13 The second proviso to section 92C(4) refers to a case where the amount involved in the international transaction has already been remitted abroad after deducting tax at source and subsequently, in the assessment of the resident payer, an adjustment is made to the transfer price involved and, thereby, the expenditure represented by the am....

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.... every person who has entered into an international transaction during a previous year shall obtain a report from an accountant and furnish such report on or before the specified date in the prescribed form and manner. Rule 10F, and Form No. 3CEB have been notified in this regard, The accountant's report only requires furnishing of factual information relating to the international transaction entered into, the arm's length price determined by the assessee and the method applied in such determination. It also requires an opinion as to whether the prescribed documentation has been maintained. 55.16 The new section 92F defines the expressions "accountant", "arm's length price", "enterprise", "specified date" and "transaction" used in sections 92, 92A, 92B, 92C, 92D and 92E, The definition of enterprise is broad and includes a permanent establishment, even though a PE is not a separate legal entity. Consequently, transactions between a foreign enterprise and its PF, for example, between the head office abroad and a branch in India, are also subject to these transfer pricing regulations. Also, the regulations 33 would apply to transactions between a foreign enterprise and....

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....he Act has also amended section 273B to provide that the above mentioned penalties under section 271AA, 271BA and 271G shall not be imposable if the assessee proves that there was reasonable cause for such failures. 55.23 These amendments will take effect from 1st April, 2002 and will accordingly apply to the assessment year 2002-2003 and subsequent yea Rs. The learned counsel further submitted that Rule-10C gives guidelines for the selection of most appropriate method. For ready reference the same is reproduced herein below:- Rule 10C - Most Appropriate Method. - (1) For the purposes of sub- section (1) of section 92C, the most appropriate method shall be the method which is best suited to the facts and circumstances of each particular international transaction, and which provides the most reliable measure of an arm's length price in relation to the international transaction. (2) In selecting the most appropriate method as specified in sub-rule (1), the following factors shall be taken into account, namely :- (a) the nature and class of the international transaction; (b) the class or classes of associated enterprises entering into the transaction and the fun....

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....rious factors and material differences arising on account of risk, financial support, marketing support, technical support, geographical presence, ready set up, recognition, assets employed and currency fluctuations. The learned counsel for the assessee further submitted that, as prescribed under the said CUP method, the adjustments on account of differences between the international transactions and comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the prices in the open market, are very difficult to quantify. In fact TPO has not made an attempt to make any adjustment on account of the factors viz. financial support, marketing efforts, storage of goods for ready delivery and all other relevant and material facto Rs. In fact, the learned counsel submitted that it has already discounted and adjusted its prices for these factors but the said adjustments have been simply ignored and brushed aside by the TPO without giving any cogent reasons. The learned counsel for the assessee submitted that no adjustment to the Arm's Length Price is called for and the adjustments made by the TPO may kindly be deleted. ....

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....goods to the AEs and the AEs in turn sale the goods to their customers in North / South America, Europe etc., which are highly competitive markets and as such it becomes difficult to sustain. The assessee has denied that it has charged lower rates from AE's as compared to those of Non-AE's, the AE's have not been able to make profits. As per assessee, if the assessee has charged rates, which are higher than those charged to Non-AE's there is a possibility that the AE's will not be able to sale anything. According to assessee, the CUP method is used, as in the said method, controlled transactions are being compared with uncontrolled transactions wherein the degree of comparability with uncontrolled transactions is very high. According to assessee, in any case, it is not necessary to give all the reasons or grounds for justification of a particular method in the audit report itself. If it is stated that a particular method is followed because in majority of the cases prices are comparable between AE and non-AEs, as per the assessee, it has every right to adopt the CUP method. The assessee also admits that in few instances, when prices of other comparable cases are not available, in t....

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....uncontrolled transaction involved unbranded Brazilian coffee beans, it would be appropriate to inquire whether the difference in the coffee beans has a material effect o the price. Of example, I could be asked whether the source of coffee beans commands a premium or requires a discount generally in the open market. Such information ma be obtainable from commodity markets or may be deduced from dealer prices. If this difference does have a material effect on price, some adjustments would be appropriate. If a reasonably accurate adjustment cannot be made, here liability of the CUP Method would be reduced, and it might be necessary to combine the CUP method with other less direct methods, or to use such methods instead. 2.12 One illustrative case where adjustments may be required is whether the circumstances surrounding controlled and uncontrolled sales are identical, except for the fact that the controlled sales price is a delivered price and the uncontrolled sales are made f.o.b. factory. The differences in terms of transportation and insurance generally have a definite and reasonably ascertainable effect on price. Therefore, to determine the uncontrolled sales price, adjustment ....

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....not impossible for them to find relevant data of an exact or of a similar transaction or profit made not only by the taxpayer, but also by other similarly situated uncontrolled enterprises. Knowledge of economic conditions prevailing at the place where transactions are carried is also essential. The very nature of this job of collection of data is such that the assessee is in the best position to gather the requisite information. 129. The taxpayer, on the other hand, as a party to the transaction has full knowledge of the transaction carried and profit earned by him. As a person associated with that particular line of business activity, the assessee is reasonably expected to be not only aware about nuances of that business, but also about economic conditions and peculiar circumstances, if any, of that business. He is likely to know even about comparable uncontrolled transactions. Otherwise too as per the settled law every attempt to collect best evidence has to be made. Evidence of situation has to be called from a person possessing special means to know that situation. Therefore, it is reasonable to call upon the taxpayer to furnish evidence of controlled/uncontrolled transacti....

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....tting their own transfer prices. The burden of proof lies with the taxpayer to prove that the original price has been set at arm's length. Ireland Under Ireland ' s self-assessment system, the burden of proof in the event of a revenue audit will fall on the taxpayer. Italy The general principle is that the burden of proof lies with the tax authorities. Where the tax authorities issue an assessment to additional tax, however, the taxpayer must prove there is no liability for the additional tax. There are other circumstances in which the burden of proof lies with the taxpayer. The most important of these are the following : If an enterprise that is tax resident in Italy wants to claim a deduction for the costs of transactions with parties that are resident in certain tax havens, then the Italian taxpayer must provide evidence that the foreign party is a genuine commercial undertaking or that the transactions were effected in connection with a real economic interest; and An Italian taxpayer would also have to be able to prove that the relevant transaction actually took place. Malaysia In the self-assessment system, the burden of proof lies with the taxpayer to clear any tax avoidan....

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....and Tax Act. Where the Commissioner substitutes an arm's length price for the actual price, then the Commissioner must prove that either : (1) this is a more reliable measure : or (2) the taxpayer has not co-operated with the Commissioner. The guidelines provide guidance on what is considered to be non-cooperation : Where the taxpayer does not provide the requested relevant information to the Commissioner : or If a taxpayer does not prepare adequate documentation, and provide it to the inland Revenue if requested. United Kingdom The position after the 1999 rules is that the burden for proving that transfer prices are at arm's length falls squarely on the taxpayer ' s shoulde Rs. The act of submitting the return under self- assessment implicitly assumes that the taxpayer has made all necessary adjustments to taxable profits to take account of non-arm's length pricing. Switzerland The burden of proof within Switzerland lies with :  The taxpayer regarding the justification of tax deductible expenses; and  The tax authorities regarding adjustments, which increase taxable income. This effectively means that a taxpayer has to prove to the Swiss tax authorities that ....

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....xpayer to comply with the statutory provisions, the tax authorities would have to determine the ALP. In such a situation, burden of proof on tax authorities is much reduced. 133. Having regard to the statutory provisions, particularly the mandate of ss. 92(1) and 92D read with relevant rules, we hold that it is obligatory on the part of the taxpayer to furnish information relating to controlled international transactions, select a suitable method for determination and furnish ALP of such international transactions carried by it and give basis and supporting authentic evidence of ALP and adjustments made. The taxpayer has further to co-operate in the determination of the ALP by the tax authorities by furnishing all relevant information. The tax authorities in cases where they are of the opinion that ALP has not been correctly determined by the taxpayer, can substitute their own ALP on the basis of material or information furnished by the assessee or collected by them. However, such ALP has to be determined having in mind provisions of ss. 92 and 92C and other rules and regulations. While determining ALP, tax authorities are bound to follow principles of natural justice and be fai....

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....ng ALP, the first important factor to consider is the specific characteristics of services rendered both in the international transaction as also in the uncontrolled transaction. Next important aspect required to be considered is amount of assets employed, risk involved, both in controlled and uncontrolled transactions. If there are such differences between transactions taken for comparison, which are likely to affect the price or cost charge etc. in the open market then reasonable and accurate evaluation is to be done and adjustment made. Reliability of uncontrolled transaction would depend upon the degree of comparability. The uncontrolled transaction may not be taken "as comparable" if there are such material differences as cannot be adjusted. If data found satisfies above requirements then further proceedings to find the most appropriate method, best suited to the facts and circumstances of a particular international transaction is to be selected. In other words, most appropriate method would be the method which provides most reasonable results having regard to the data available for determining arm's length price. If there are more than one ALPs determined on the application o....

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..... The assessee has not filed the details of functional analysis of these enterprises taking into account assets used and risk assumed. Similarly, the Hon'ble ITAT Bangalore Special Bench in the case of Aztec Software & Technology Services Ltd. (supra) has placed burden of the taxpayer to justify the transactions carried at ALP by maintaining the documents and other details. The Hon'ble Banagalore Special Bench has also held that taxpayer as a party to the transaction has full knowledge of transaction carried out and as a personal associate with that particular line of business, the assessee reasonably accepted to be not only aware about nuisance of that business and but also economic conditions and peculiar situation of that business. The Bench further held that the assessee knew even about the comparable uncontrolled transaction, and therefore it is reasonable to call upon the taxpayer to furnish controlled / un controlled transactions which are within taxpayer's special knowledge. Accordingly, the burden placed on the assessee is not discharged in the present case before us as the assessee has not filed the details before TPO or the Assessing officer. The relevant details....

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....ITA No.3528/Ahd.2004 for the assessment year 2001-02 vide order dated 16-05-2008 against the assessee. We find that the CIT(A) in both the years has relied on the appellate order for the assessment year 2001-02 and decided this issue following the same. However, the CIT(A) in assessment year 2003-04 has also given a finding in para 6.4 of his appellate order 21-11-2006 as under:- "6.8 Thus the issue involved is not that any old machinery was used, but the issue is that no new industrial undertaking came into existence. The above position clearly shows that what has been done in the name of alleged new industrial undertaking is that the assessee has purchased a turbine and it has been claimed that turbine independently can generate power and as such this is a new power plant. It was claimed that assessee had installed new turbine and this can be utilized by using steam from outside sources and since the assessee already had a boiler, they have charged for consumption of steam at the rate of Rs. 660/- per MT. It appears that the assessee wants to say turbine in itself amounts to establishing a new undertaking. This does not appeal to reason because turbine in itself can never be h....

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.... for consumption of steam at the rate of Rs. 660 per MT. Relying on the decision 107 ITR 195 (SC), it was pointed out that the assessee may establish a new unit for using the product of the old business as its raw material. The business may establish new unit for supplying raw material for its old unit. The assessee may establish a division of its own product as a new unit and the assessee may establish one or more units. It was also pointed out that the AO has presumed that the existing boiler is an integral part of the new plant. There is no transfer of previously used plant and machinery and therefore the question of value of previously used plant being less than 20% of the total value of the new plant and machinery does not survive. It was also pointed out that the total value of the plant and machinery used for business of generating power works out to Rs. 14,56,44,295/- (1827180 on plant and machinery and 126427115 Turbine, a new industrial unit). The value of the boiler (pre-existing and pre-used is Rs. 1476600/- (purchased secondhand on 9-11-98). It was also contended that the boiler is not a part and parcel of new plant and machinery. The AO did not agree with the contenti....

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....w. The deduction u/s 80IA is available to an assessee where the gross total income of the assessee includes any profits and gains derived by an undertaking or enterprise from any eligible business as referred to in sub-section (4). The deduction shall be allowed an amount equal to 100% of the profits and gains derived from such business for ten consecutive yea Rs. As per section 80IA(4) this section applies to any undertaking which is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 2010. Sub-section (3) of section 80IA requires that such undertaking must fulfill the conditions laid down therein. The first condition therein is that the undertaking should not be formed by splitting up, or the reconstruction, of a business already in existence. The second condition states that the undertaking is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation 2 to this sub-section states that where in the case of an undertaking, any machinery or plant or any part t....

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.... It is not the case of the assessee that the new unit established by the assessee has taken the boiler from the existing unit for its exclusive use and generation of power. It is only in the existing unit the assessee has added new turbine which, in our opinion, cannot be regarded to be establishing the new undertaking qualifying for deduction u/s 80IA. We, therefore, do not find any illegality or infirmity in the order of the CIT(A) in denying deduction to the assessee u/s 80IA. Thus, Ground Nos.3 and 4 stand dismissed." 9. As the Tribunal has already decided this issue and this being a recurring issue and while deciding this issue, one of the Members, i.e. the author of this order, is party to the order for assessment year 2001-02, the facts being exactly identical, we decide this common issue against the assessee. Accordingly, this common issue of the assessee's appeals is dismissed." 33. In view of the above facts, we find that the assessee has made a claim for deduction u/s.80IA of the Act on the basis that it had set up a new industrial undertaking and accordingly is eligible for deduction. The Assessing officer disallowed the claim made by the assessee by stating that t....

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....e Act. Since the facts being similar, we respectfully following the Hon'ble jurisdictional High Court delete the penalty u/s.271(1)(c) of the Act on this issue. 34. As regards to confirmation of penalty on account of addition of transfer pricing difference on ALP, the matter in quantum appeal has been set aside to the file of Assessing officer, the penalty cannot survive at this stage. However, the Assessing officer is free to initiate the penalty u/s.271(1)(c) of the Act if the facts warrant so during the course of assessment of set aside proceedings and as per law. 35. Accordingly, this appeal of the assessee is allowed as indicated above. 36. The next issue in Revenue's appeal is as under:- "The CIT(A) erred in law and on facts in directing to delete penalty on the following issues:- i) Excess depreciation claimed ii) Non-inclusion of sales tax and excise duty in the total turnover for the purpose of deduction u/s.80HHC. 2. On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing officer." 37. As regards to the first issue, i.e. the deletion of levy of penalty by the CIT(A) on account of excess d....