TaxTMI 
TaxTMI 
2016 (6) TMI 208
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....ncome-tax (Appeals) is contrary to law and to the facts and circumstances of the case. 2. On the facts and in the circumstance of the case and in law, the learned Commissioner of Income Tax (Appeals)-IIl, Pune has erred in giving relief of Rs. 92,75,656/- by holding that when the assessee exercises the option, only to losses of the year beginning form the initial assessment year are to be brought forward & not the losses of earlier years, ignoring section 80IA(5) which stipulates that for the purpose of deduction u/s 80IA(1), profits & gains of business of the assessee is to be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year & the subsequent assessment year. 3. For these and such other reasons as may be urged at the time of the hearing, the order of the Commissioner of Income-tax (Appeals) may be vacated and that of the Assessing Officer be restored. 4. The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal during the course of the appellate proceedings before the ITAT . 4. The assessee in ITA No. 974/PN/2014 has raised the following gr....
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....rried forward and not the losses of earlier years which had been adjusted against other income of the assessee. 7. Briefly, the facts relating to the issue are that the assessee in addition to carrying on of its business of manufacturing of Nozzle Shroud Plates in unit No.3, which was 100% EOU and further carrying on the manufacturing activity in non-EOU units, had also declared income from electricity generated from its windmill. The assessee purchased two windmills in financial years 2001-02 and 2002-03. During the year under consideration i.e. assessment year 2008-09, the assessee had claimed deduction under section 80IA(5) of the Act at Rs. 92,75,656/-. The Assessing Officer denied the claim of assessee, in view of brought forward losses in the hands of assessee from windmill unit. The Assessing Officer was of the view that the assessee is not entitled to claim the aforesaid deduction in respect of profits from eligible business without adjusting the prior year losses from such eligible business against the current year's income on the ground that prior years losses from the eligible business had already been set off against the income from business and other income. The Asses....
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....ued to the extent it relates to interpreting 'initial assessment year' as mentioned in sub-section 5 of section 80IA of the Act. The copy of Circular is placed on record. Further, similar issue of claim of initial assessment year arose before the Tribunal in assessee's own case relating to assessment years 2004-05 to 2006-07 and the Tribunal in ITA Nos.290 to 292/PN/2010, vide order dated 28.09.2011 accepted the plea of assessee and held that the assessee has the option in choosing the initial assessment year i.e. 2004-05 in the instant case and held that only the losses of the year beginning from initial assessment year were to be brought forward and not the losses of earlier year which had already been set off against the other income of assessee. It was further held by the Tribunal that the revenue could not notionally bring forward any loss of earlier years which had already been set off against any other income of the assessee and set off the same against the current income of the eligible business. Applying the said decision in assessee's own case and in view of the Circular of CBDT (supra), we uphold the order of CIT(A) and dismiss the grounds of appeal raised by the Revenue....
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....assessment year 2008-09 was referred under section 92CA(1) of the Act to the Transfer Pricing Officer (TPO) after obtaining statutory approval of CIT-III, Pune and the order of TPO under section 92CA(3) of the Act was also received, wherein the value of international transaction with regard to arm's length price was not disturbed. The assessee took exception to the reference made to the TPO arguing that it was covered by the provisions of Chapter X of the Act as no associate enterprise was established, hence, it was contended that the assessment for assessment year 2008-09 was barred by limitation. The Assessing Officer noted that during the year under consideration, the assessee had imported items worth Rs. 2,06,58,677/- with respect to unit-3 and total export sales to Cummins Turbo Technologies, USA were to the tune of Rs. 9,49,62,887/-. Since the transaction exceeded sum of Rs. 5 crores as per the Assessing Officer, CBDT Instruction No.3 of 2003, was to be applied and the case was referred to the TPO. The Assessing Officer also noted that the assessee had not filed any Form 3CEB report with respect to international transaction as it contended that it was not attracted by the....
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....ection 92CA of the Act that requires the Assessing Officer to first form a considered opinion to make reference to the TPO. The Tribunal further held that it was sufficient for him to form a prima facie opinion that it is necessary and expedient to make a reference and such a reference was a step in the collection of material in passing the assessment order and does not visit the assessee with civil consequences. Accordingly, the Assessing Officer held that the reference to the TPO was valid and assessment order for assessment year 2008-09 was not barred by limitation. The Assessing Officer thereafter, worked out the disallowance under section 80IA(5) of the Act, against which the Revenue is in appeal. We have already adjudicated the said issue. 15. The grievance of the assessee before the CIT(A) was that the order passed by the Assessing Officer on 30.12.2011 was barr ed by limitation. The CIT(A) forwarded the objections of assessee to the Assessing Officer and sought his comments on the issue of assessment being time barred. The report of the Assessing Officer in this regard, was that the Addl.CIT, Range -6, who was the Assessing Officer at that time had made a reference to CIT-....
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....ent on the assessee for reducing cost within 30 days of any competitive pricing offer received by Cummins. Therefore, where Cummins had an upper hand so far as the pricing was concerned, then the provisions of clause (i) to section 92A(1) of the Act were attracted. Further, reference was made to the other clauses i.e. clause 9.1, 11.3, 12.2 and 12.4 and it was held that there were stringent responsibility and requirements from the side of the assessee. Further, reference was made to the order passed by the TPO with regard to value of international transaction, wherein he had made no adjustment to the arm's length price and the very fact that an order under section 92CA(3) of the Act was passed by the TPO stating that the international transaction was at arm's length price establish the fact that Cummins was deemed AE under the provisions of the Act. The objection of the assessee that Cummins could not be deemed AE under clause (m) of section 92A(2) of the Act, was accepted by the CIT(A), however, it was held that the reference was made by the Assessing Officer to the TPO was fully justified and therefore, assessment completed on 30.12.2011 was not barred by limitation. 16.....
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....the various clauses of agreement and pointed out that the profit of Rs. 3 crores was declared on turnover of Rs. 12 crores. He further stressed that even under the Act, there is no concept of deemed AE, where the assessee had right to walk out and also the right to negotiate prices. In this regard, he stressed that the assessment should be considered as time barred. 18. The learned Departmental Representative for the Revenue strongly placed reliance on the order of CIT(A) in this regard. 19. We have heard the rival contentions and perused the record. The definition of associate enterprise is provided in section 92A of the Act, which reads as under:- "92A. Meaning of associated enterprise.- (1) For the purposes of this section and sections 92, 92B, 92C, 92D, 92E and 92F, "associated enterprise", in relation to another enterprise, means an enterprise- (a) which participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise; or (b) in respect of which one or more persons who participate, directly or indirectly, or through one or more intermediaries, in its management or control or capital, are the sam....
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.... other conditions relating thereto are influenced by such other enterprise; or (j) where one enterprise is controlled by an individual, the other enterprise is also controlled by such individual or his relative or jointly by such individual and relative of such individual; or (k) where one enterprise is controlled by a Hindu undivided family, the other enterprise is controlled by a member of such Hindu undivided family or by a relative of a member of such Hindu undivided family or jointly by such member and his relative; or (l) where one enterprise is a firm, association of persons or body of individuals, the other enterprise holds not less than ten per cent interest in such firm, association of persons or body of individuals; or (m) there exists between the two enterprises, any relationship of mutual interest, as may be prescribed." 20. Admittedly, the case of the Revenue authorities against the present assessee is that the assessee which had entered into an agreement for the supply of Nozzle Shroud Plates to Cummins and as per the terms of the said agreement, Cummins was the deemed AE of the assessee before us. The conclusion of the authorities below was on account of t....
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....d the shareholders and its Directors had direct and full control over the management, control and capital of the company. Further, there were no intermediaries in the management, control or capital of the company or business of the company. The assessee company had no third person outside the family members, who were the shareholders or Directors. The shareholders and Directors of the assessee company were not the Directors / Shareholders in any concern, who had any direct or indirect interest in any concern outside India. The assessee further claimed before the TPO that it had not taken any loan from any third party, except the Directors and the shareholders and it had not given any loan to any third parties or any guarantee was taken or given to any party. More than 70% of suppliers of raw materials and consumables were domestic suppliers. The assessee has placed on record the list of shareholders at page 20 of the Paper Book. The TPO while issuing the notice under section 92CA(2) of the Act, had show caused that where the assessee was manufacturing Nozzle Shroud Plates in its unit-3 which was 100% export oriented unit and where the plates were exported exclusively to Cummins and....
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....se "in respect of which one or more persons who participate, directly or indirectly, or through one or more intermediaries, in its management or control or capital, are the same persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise." In effect, thus, when same persons participate, directly or indirectly or through an intermediary, in the management or control or capital of two or more enterprises, such enterprises are required to be treated as 'associated enterprise'. Interestingly, even as definition of 'associated enterprises' has crucial references to 'participation in management or control or capital' at some places, the precise scope of this expression has not been defined under the provisions of the Income-tax Act, and it has not come up for judicial adjudication either. This expression has been used in Article 9(1) of OECD and UN model conventions, but we find no assistance from the OECD and UN commentaries either. All that the OECD commentary says on the scope of this expression is that it refers to "parent and subsidiary companies and companies under co....
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....ult. In our considered view, as all clauses of deeming fictions set out in section 92A(2) are only illustration of the manner in which this de facto control on decision making exists, it is necessary that, while interpreting these deeming fictions, we interpret the same in such a manner as to make them workable rather than redundant (ut res magis valeat quam pereat), and that the same test of effective control on decision making as are implicit in deeming fiction under section 92(A)(2) we also apply to the situations of more than two associated enterprises envisaged in section 92A(1)(b). In this light, let us analyse the situation before us. The manufacture of goods is carried out by the CBU Konkan Agro, which is controlled by the assessee inasmuch as the CBU is wholly dependent on the use of trade-marks in respect of which the assessee has exclusive rights. This relationship meets the test of de facto control on decision making as set out in section 92A(2)(g). The assessee in turn, as evident from information in Form 3CEB, is controlled, by way of equity participation, by Diageo PLC which also similarly controls other entities in the Diageo group, including the entities from which....
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.... or capital in the running of assessee company through its directors or any subsidiary. The connection between the two is commercial arrangement. The assessee was supplying the Shroud Plates to Cummins, which in turn, were required for one type of Turbo chargers, which was exclusively used in that type of diesel engines. Cummins was manufacturing Turbo chargers required for several types of diesel engines. The total turnover of the assessee for the year was Rs. 48.45 crores, out of which export sales to Cummins was Rs. 9.34 crores i.e. 19.26% of the total sales. Further, the total material consumed for all the products including Shroud Plates was Rs. 24.10 crores and as per the assessee, the corresponding consumption for Cummins products was Rs. 2.72 crores. The assessee had entered into a purchase agreement with Cummins for the supply of Shroud Plates in August, 2005. The perusal of terms of the agreement reflects the understanding between the assessee with its purchaser Cummins for the supply of goods within time frame and the pricing of said goods. The pricing has been fixed as per mutual understanding of the parties and further, there was a clause to negotiate the price in the ....
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.... 500 Companies, whose turnover of Turbo chargers was close to about Rs. 3500 crores. In the entirety of the above said facts and circumstances, we hold that since both the enterprises have not fulfilled the conditions laid down in section 92A(1) of the Act and where there is no connection whatsoever by way of participation in management or control or capital by the entities or its subsidiaries, either directly or indirectly the assessee and Cummins cannot be said to be associate enterprises in order to apply the provisions of Chapter X of the Act. In the absence of assessee having entered into any international transactions with any associate enterprises, there is no requirement for making a reference to the TPO in the present facts of the case. Accordingly, reference made by the Assessing Officer though with the prior permission of CIT-III, Pune is not justified since the assessment to be completed in the hands of assessee was a normal assessment, hence the assessment order should have been passed by 31.12.2010. However, the present assessment order having been passed on 30.12.2011 is barred by limitation and is invalid. Before parting, we would like to clarify herein that admitte....