AI Drafter 
TaxTMI 
TaxTMI 
2009 (7) TMI 1270
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....Act vide his order dated 29-03-2007 and 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, D....
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..... We accordingly confirm the order of the CIT(A) on this issue. Thus, this ground stands 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 ....
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....d 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 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....
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....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 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 ....
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....dertaking 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 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 engage....
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....assessee. Accordingly, this common issue of the assessee's appeals is dismissed. 10. The next common issue in both the appeals of the assessee is as 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 ....
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....On the other hand, the Ld. Departmental Representative, Shri H. Patidar relied on the decision of Hon'ble Punjab & Haryana High Court in the case of Liberty India v. CIT (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 duti....
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....om the business of the industrial undertaking." We find that the Hon'ble Delhi High Court in the case of ELTEK SGS P.Ltd. (supra) has allowed the claim on duty drawback. Since this High Court is in favour 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 ....
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....t be so construed so as to make it effective and operative on the principle expressed in the maxim, ut res magis valeat quam pereat. There is no scope for importing into the statute is the edict of the Legislature and the duty of the judicature 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)....
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....eal of the assessee is against the order of CIT(A) in including the excise duty in the total turnover for the purposes computation of deduction u/s.80HHC of the Act. The assessee has raised the following ground in this appeal:- "6. The learned CIT(Appeals)-Vs, 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." 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....
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....e purpose of business" is satisfied in respect of the capital borrowed, the assessee would be entitled to deduction under section 36(1)(iii) of the Act. This provision makes no distinction between money borrowed to acquire a capital asset or a revenue asset. All that the section requires is that the assessee 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 1....
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....he entire sale proceeds of DEPB license could have been reduced from the profits of the business." "12. Alternatively and without prejudice, if profit on sale of DPB license is not falling within the purview of S.28(iiia)(iiib)(iiic) of the Act, the same is not liable to tax at all and therefore the same has to be reduced from the taxable 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 tha....
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....ly because the same has been granted mechanically, without any application of mind and without due diligence." "8. The learned CIT(A) has erred in law and on facts in confirming the action of AO in referring the case of the appellant to the transfer pricing officer. Under the facts and circumstances of the case, there was no reasons to interfere with the pricing as well as method thereof adopted 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 Tran....
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....onsidering (+) 5% where the price charged to the AE was less than 5% of the price charged to the non-AE, the same had been considered for adjustment. The assessee's argument that in some instances, the price charged to the AEs is more than that charged to the non-AEs and the consequent demand for averaging the price does not hold goods as the Transfer Pricing Provision do not permit reduction in the income". and finally held as under: "8. Considering 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 subm....
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.... was 16800 kg. while the price charged from AE is Rs. 397.28 per kg. as against for Non-AE it is Rs. 610.43. Therefore, in spite of lesser quantity sold to AE the price charged is less. Similarly if we see the item of product code No.110583, the quantity supplied to AE is 4000 kg. and to Non-AE it is 6870 kg. while the rate charged from AE is Rs. 470.56 per kg. and the rate charged from Non-AE is Rs. 620.56 per kg. Similarly in the case of product code 45224, the 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....
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....de under transfer pricing provisions. He further argued that all citizens of the country have a fundamental right to do business under the constitution. Transfer pricing provisions must not be interpreted in a manner that this fundamental right is adversely affected or diminished. Such interpretation will make the provisions falling foul of the constitution. That is why, Rule 10B(1)(a)(ii) provides that the ALP (Arm's Length Price) determined by the CUP method shall be adjusted 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 dev....
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....ion 92C having regard to the arm's length price determined under sub-section (3) by the Transfer Pricing Officer." Therefore, the learned counsel for the assessee further argued in view of the above provisions that it was obligatory on the part of the Assessing Officer before passing the assessment order to issue a show cause notice to the assessee asking it to show cause as to why he should not compute the transfer pricing addition having regard to the TPO's order. The Delhi High Court 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 ....
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....rther submitted that as a separate reasoned order is passed by the TPO under Sec.92CA(3) of the Act, a separate submission is made herein, dealing with the contentions raised in the impugned order dated 20.2.2006. In the Appeal Memo, the assessee has challenged the action of the TPO in adding a sum of Rs. 1,80,62,067/-. As regards this addition of Rs. 1,80,62,067, the learned counsel for the assessee submitted that the entire addition made by the TPO is untenable both on facts as well as under the law. 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 ....
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....e found out the price of a product in an uncontrolled transaction of sale and compare the same, after making necessary adjustments for various factor associated with AEs, with the average price of sales with AE. The assessee in its reports submitted as per Rule-10D of the Income-tax Rules gave the comparison of various sales instances with other concerns and it was demonstrated that the prices charges to AE of the assessee was comparable with that of the other non-AE or such similar cases. The learned 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 underdevelope....
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....t prices charged by it to AE in such cases are ALP. * The Learned TPO contended that wholesale margins and volume discounts as well as political risks have not been substantiated. The appellant most respectfully submits that it has provided the information and quantified these factors as provided in the Rules. However it the ld. TPO was not satisfied about its reasonableness, she should have conducted independent inquiry and given reasons as to how the percentages quantified by the appellant are not justified. 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 ....
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....ndia, in the case of such multinational enterprises, the Act has substituted section 92 with a new section, and has introduced new sections 92A to 92F in the Income-tax Act, relating to computation of income from an international transaction having regard to the arm's length price, meaning of associated enterprise, meaning of international transaction, computation of arm's length price, maintenance of information and documents by persons entering into international transactions, furnishing of a report from an accountant by persons entering into international 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 appl....
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....must be a non-resident. The definition also covers a transaction between two non-residents, where for example, one of them has a permanent establishment whose income is taxable in India. 55.8 Sub-section (2) of section 92B extends the scope of the definition of international transaction by providing that a transaction entered into with an unrelated person shall be deemed to be a transaction with an associated enterprise, if there exists a prior agreement in relation to the transaction between such other person and the associated enterprise, or the terms of the relevant transaction 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 transacti....
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....t been determined in accordance with sub-sections (1) and (2), or information and documents relating to the international transaction have not been kept and maintained by the assessee in accordance with the provisions contained in sub-section (1) of section 92D and the rules made thereunder; or the information or data used in computation of the arm's length price is not reliable or correct; or the assessee has failed to furnish, within the specified time, any information or document which he was required to furnish by a notice issued under sub-section (3) of section 92D. If any one of such circumstances exists, 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 ....
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....th price of the transaction. The documentation should be available with the assessee by the specified date defined in section 92F and should be retained for a period of eight yea Rs. During the course of any proceedings under the Act, an Assessing Officer or Commissioner (Appeals) may require any person who has undertaken an international transaction to furnish any of the information and documents specified under the rules within a period of thirty days from the date of receipt of a notice issued in this regard, and such period may be extended by a further period not exceeding thirty days. 55.15 The new section 92E provides that 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....
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....on entered into by such person. 55.20 The new section 271BA provides that if any person fails to furnish a report from an accountant as required by section 92E, the Assessing Officer may direct that such person shall pay by way of penalty, a sum of one lakh rupees. 55.21 The new section 271G provides that if any person who has entered into an international transaction fails to furnish any information or documents as required under sub-section (3) of section 92D, the Assessing Officer or the Commissioner (Appeals) may direct that such person shall pay, by way of penalty, a sum equal to two per cent. of the value of the international transaction. 55.22 The 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 sa....
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....hod, by which, :- (i) the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified; (ii) such price is adjusted to account for differences, if any, between the international transaction and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market; (iii) the adjusted price arrived at under sub-clause (ii) is taken to be an arm's length price in respect of the property transferred or services provided in the international transaction; In view of this he stated that the said method can only be applied after taking into consideration various 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 uncontrol....
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...., both the AEs as well as non-AEs. The assessee claimed during the course of hearing before TPO, before the AO during the course of assessment proceedings and before CIT(A) submitted the details of price charged to AEs and non-AEs and the reasons for variation. The same details were even produced before us as Annexure-A, which is available at pages 34 to 111 of the assessee's paper book-II. The assessee has made comparison in many of the cases with the sales made with AEs in the developed countries and the sales made to under developed countries to non-AEs. The main contention of the assessee is that the assessee has more margins in the sales made to under-developed countries due to various risks involved in dealing with the under-developed countries. Accordingly, it was the contention that its sales 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,....
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....P method is to be applied. The relevant para 2.10 to 2.13 read as under:- "2.10 The following examples illustrate the application of the CUP method, including situation where adjustments ma need to be made to uncontrolled transactions to make them comparable uncontrolled transactions. 2.11 The CUP method is a particularly reliable method where an independent enterprise sells the same product as is sold between two associated enterprise. For example, an independent enterprise sells unbranded Colombian coffee beans of a similar type, quality, and quantity as those sold between two associated enterprises, assuming that the controlled and uncontrolled transactions occur at about the same time, at the same stage in the production / distribution chain, and under similar conditions. If the only available 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....
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....ponsibility of determination of ALP is shifted to the Revenue authorities who are to determine the same in accordance with statutory regulations. 128. There is criticism that legislature is not justified in placing onerous burden on the taxpayer to maintain detailed documents and to justify that transaction was carried at ALP. It is contended/argued that this is like insisting upon production of self-incriminating evidence and is uncalled for. This criticism, in our opinion, is without any valid basis. It is to be remembered that international transactions carried out by taxpayer are cross-border transactions. Departmental authorities in India are required to deal with and determine ALP of transactions carried in Asia, Europe, America, Australia, other developed and under-developed countries in Africa, etc. It is very difficult, if 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 ....
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....en dealing with other group companies and with unrelated custome Rs. Where this information is not disclosed, the Court concludes that the burden of proof on the Danish tax authorities is reduced. France As a rule, the burden of proof lies with the tax authorities, unless the transfer of profits concerns a tax haven, in which case the burden of proof is transferred to the taxpayer. Recent developments mean that there is now a legal requirement for taxpayers to provide documentation supporting their transfer pricing policies. Though in theory the burden of proof lies with the tax administration, in practical terms the burden of proof has always fallen on the taxpayer where the tax authorities have deemed a profit shift to have taken place or inappropriate transfer pricing to exist. Indonesia Indonesia operates on a selfassessment system with companies setting 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 t....
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....urden of proof transfers to the taxpayer if the pricing arrangements are very unusual, for example if comparable uncontrolled prices (CUP) are available but not used, or goods or services are provided at cost or below cost. The burden of proof is also transferred to the taxpayer, and will be more onerous, if s/he refuses to provide information requested by the tax authorities where there is a legal obligation to provide that information, or if the requisite tax return is not filed. Finally, the Court sometimes allocates the burden of proof to the party best able to provide the evidence. New Zealand In New Zealand, the burden of proof normally lies with the taxpayer, not the Commissioner. However, s. GD13(9) places the burden of proof on the Commissioner where the taxpayer has determined its transfer prices in accordance with ss. 13(6) to 13(8) of the New Zealand 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 : Wh....
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....ble in the laws of other countries. It would be seen that even a most advanced country like United Kingdom has provisions placing on the taxpayer the burden of proving that international transaction is carried at ALP. 132. A dispassionate study of provisions of various countries on burden of proof, would show, the following fundamental features : (i) That the burden to establish that international transaction is carried at ALP, is on the taxpayer who is to disclose all the relevant information and documents relating to prices charged and profit earned with related and unrelated customer. (ii) If the AO has determined an ALP, other than the price declared by the assessee, AO has to prove that the price determined by him is reliable and reasonable and confirms the statutory requirement unless the case is covered by situation No. (iii) below. (iii) In case of failure on the part of the taxpayer 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 releva....
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....tries, it is provided that burden on the Revenue authorities in such a case would be reduced. We have not come across similar provision in Chapter X of the Act. The tax authorities therefore, have to resort to provision of s. 144 of the IT Act and determine the ALP on the basis of the material collected or available on record. In such circumstances, the ALP determined would be on the parity with a best judgment assessment. Such assessment (determination of ALP) would have some approximations and estimations. But even such approximations and estimations must satisfy dictates of justice and fair play and look reasonable. It cannot be arbitrary and capricious. The order of TPO is appealable and therefore, it must be objective, contain detailed reasons, conform to regulations and should be seen as just and fair. 135. On consideration of the relevant provisions, it is evident that in the process of determining 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, bot....
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....ions. The taxpayer and TPO had fully and clearly understood what international transactions were referred for the determination of the ALP. In the light of Circular No. 3 of 2003, approval was rightly given by the CIT as aggregate value of transactions exceeded Rs. 5 crores. The circular being binding was required to be followed. The taxpayer filed all conceivable objections before the TPO. Although each transaction should be separately mentioned, but no prejudice is shown to have been caused to the taxpayer on account of non-mention of each transaction separately. Therefore, in our opinion, this contention is to be rejected." 30. In view of the above dictates provided in the guidelines of transfer price for multi-national enterprises and tax administration in the case of CUP method including the situation where adjustments need to be made to uncontrolled transactions to make them comparable uncontrolled transaction. 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 b....
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....sfer pricing difference amounting to Rs. 2,02,39,798/- 2. The CIT(Appeals) ought to have allowed the appeal of the assessee praying for quashing of the total penalty. 3. The C.I.T.(Appeals) failed to appreciate that the Assessing officer had not recorded his satisfaction during the course of assessment proceedings for levy of penalty under sec. 271(1)(c) and also the fact that the notice under sec.271(1)(c) also did not record its satisfaction correctly." 32. After hearing the rival contentions, we find that the Tribunal has upheld the disallowance of claim of deduction u/s.80IA of the Act, in the quantum appeal in ITA No.846/Ahd/2006 by relying on the earlier year's decision, (the same is being reproduced even though at the costs of duplicity, but for the sake of clarity) by giving following findings:- "8. At the outset, the Ld. Counsel for the assessee fairly stated that this issue has been decided by the Tribunal in 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 fol....
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.... as under:- "7.Ground Nos.3 and 4 relate to the claim of the assessee for deduction u/s 80-IA in respect of new power plant. The assessee claimed that during the year he has established the new power plant and accordingly claimed the deduction on that power plant u/s 80-IA of the Act. When questioned by the AO, the assessee vide letter dated 9/3/2004 pointed out that for generation of the power what is required is turbine. For composite plant for generation of power what is required is boiler and turbine. Boiler manufactures the steam which is the raw material for turbine. Turbine is independently kept for generating power. The assessee installed new turbine which itself is a new industrial undertaking capable of generating electricity. This turbine can be operated by purchasing steam from outside source but the assessee since had the spare capacity of steam used the same for generating electricity in turbine. It was pointed out that the assessee has charged 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 mater....
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....ating electricity. This undertaking is being run independently. Merely that the assessee was using the steam as raw material from the existing boiler does not mean that a new Industrial Undertaking has come into existence. The assessee could have bought the steam from outside also. The power and plant is a separate unit from the boiler. Therefore, the assessee should have treated new turbine to be an Industrial Undertaking. Even otherwise also it was contended that the value of the boiler in any case was less than 20% of the total plant and machinery installed by the assessee. Both the learned AO and the learned CIT(A) could not be able to understand that the power can be generated independently. Thus, it was contended that the assessee was entitled for the deduction u/s 80IA. The learned DR, on the other hand, relied on the order of the AO. 9 We have carefully considered the rival submissions and perused the material on record along with the order of the tax authorities below. 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 r....
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....er but it is part of existing undertaking generating the power. This, in our opinion, is merely an expansion of the existing undertaking. If the existing boiler is carved out from the new turbine installed by the assessee, the new turbine claimed to be eligible undertaking itself cannot generate the power. No material or evidence was brought to our knowledge which may prove that the new turbine installed by the assessee can independently generate the power. The assessee is already having the undertaking engaged in the business of generating the power. The assessee in this case has merely added a new turbine to the existing undertaking by which his capacity to generate the power has increased. This, in our opinion, is merely an expansion of the existing undertaking. The new undertaking as is eligible u/s 80IA, in our opinion, must be independent and integrated unit which should be able to carry on the activities or to carry on the business as has been stipulated u/s 80IA independently. 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 u....
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....alment or filing of inaccurate particulars in the return of income. The assessee also put the certificate of the chartered Accountant as required u/s.80IA(7) of the Act which also clearly demonstrate the bona fide of the assessee in making this claim. In view of the above explanation of the assessee, we find that that it is a difference of opinion on legal point of view and the assessee's explanation has never been held to be false and without that the penalty u/s.271(1)(c) of the Act cannot be levied. In the similar circumstances, (from unreported decision), the Hon'ble jurisdictional High Court in Tax Appeal No.430 to 432 of 2006 in the case of J.C.I.T. v. Kiran Sytex Private Ltd. held that penalty levied for claim of deduction u/s.80HHC of the Act, which was disallowed while the claim of the assessee was that it was under a bona fide legal belief that it was entitled to the deduction. The Hon'ble High Court affirmed the findings of Tribunal quashing the penalty u/s.271(1)(c) of the 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 confirma....