AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2011 (10) TMI 666
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....82/- 5. Re-imbursement of expenses 13,01,000/- Total 3,74,05,022/- 3.1. By observing that the assessee has made international transactions with its associated enterprises during the year and with prior approval from CIT u/s 92C the transactions were referred to the Transfer Pricing Officer for determination of Arm's Length Price. The Transfer Pricing Officer has furnished his report which has been discussed with Shri Mondal, ld. AR of the assessee. By virtue of Sub-section (4) of Section 92C the total income will be computed in regard to the computation of Arm's Length Price and the adjustments to be made therein. Thus sum will, however, not qualify for any deduction under Chapter VIA. The report of the T.P.O. is attached to this order vide Annexure-I. 3.2. Aggrieved by this the assessee went in appeal before the ld. CIT(A). 3.3. On appeal the ld. CIT(A) has deleted the additions on account of exports of ETG and payment of IT charges by observing as under :- "Export of ETG :The assessed exported finished goods of Rs. 79,88,944/- in its ETG Division. The explanation of the assessee as well as the decision of the Transfer Pricing Officer here is on the same lines as....
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....s other companies of Philips group in a transparent manner and based on the publicly disclosed transfer pricing policy discussed above. According to the assessee, this policy is also available on the website of the Philips group. In view of these facts and circumstances, it is held that the price paid by the assessee for IT services utilized by it from the AE was not unreasonable. Consequently, the addition is deleted." 3.4. On the other hand, the ld. CIT(A) confirmed the action on account of three items i.e. import of monitors, export of finished goods and Reimbursement expenses. However, the assessee has come in appeal only on account of import of monitors and export of finished goods. In addition to these two items the assessee has taken ground no.3 by stating that on the facts and circumstances of the case the ld. CIT(A) erred in not granting the benefit of +/- 5% range while computing the arm's length price and consequent adjustment to total income. 3.5. The relevant observations of the ld. CIT(A) on account of import of monitors and export of finished goods are as under :- "2.2. Import of Monitors: This argument of the assessee is logically appealing but fails to ex....
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.... This argument is well taken. But the fact remains that even the assessee has not furnished any such reliable and comparable data in respect of CM of imported monitors in India. There is a prima facie case for transfer pricing adjustment. The benchmarking exercise carried out by the assessee does not appear to be very accurate. But if one goes by assessee's own contention and takes the product within the CE division as similar it is seen that CM percentage on other products ranged from 21.35 to 23.56 as noted above earlier. In view of these facts and circumstances, it is held that the C.M. of 14.04% adopted by the TPO cannot be disturbed. Consequently, the addition made by the Assessing Officer pursuant to the transfer pricing adjustment in the cost of imported monitors is confirmed. 3.3. Export of finished goods : The assessee has not substantiated, with relevant documents, its contention that the stock in question was lying for lack of demand. It is true that the AE was not a retail distributor nor was it the end consumer. It was the original manufacturer/supplier. Hence, all other facts remaining the same, the assessee might be required to share a part of its profit with the A....
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.... the ld. CIT(A) is also being set aside to the AO with the similar observations. 8. In the result the first two grounds of assessee as well as Revenue's are allowed for statistical purposes. 9. As regarding ground No.3 raised by the assessee the specific observations of the ld. CIT(A) are as under :- "Another ground (Ground NO.9) is that, while making transfer pricing adjustments, the Transfer Pricing Officer did not give the benefit of plus minus 5% range as provided in Section 92C(2)of the Income Tax Act. According to the said provision, where more than one price is determined by the most appropriate method, the ALP would be arithmetical mean of such price or, at the option of the assessee, the price which may vary from the arithmetical mean by amount not exceeding 5% of such arithmetical mean. It is not that, even when the most appropriate method yields only one price, the benefit of 5% variation has to be allowed to the assessee. In this case, according to the most appropriate method adopted by the Transfer Pricing Officer, the price determined was one, and not more than one in each case. Hence, there was no occasion to allow 5% variation therein. Hence, this ground is reje....
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.... clauses of the agreements it is clear that the vehicles were chosen by the assessee taken delivery by or at the option of the assessee, registered in the name of the assessee, insured in the name of the assessee and by the assessee, and also repaired at the cost of the assessee. By taking into consideration of these facts he concluded that for all practical purposes the assessee is the owner of the cars and the instalments for purchase is paid to so-called Leaseplan India Ltd. Although the assessee called the term lease rental it is nothing but the instalments paid for the purchase of motor cars. As these are paid for the purchase of the capital asset, the instalments are not allowed as revenue expenditure. 15.1. On appeal the ld.CIT(A) has deleted the same by observing as under :- "9.4. The Assessing Officer analysed the lease agreement with Leaseplan India Ltd. And came to the conclusion that the assesee was the real owner of the cars and Leaseplan India Ltd was just a financier and that the lease agreement was in substance of financing arrangement. Having said that, he hurriedly disallowed the payment of Rs. 70 lakhs by the assessee to Leaseplan India Ltd as the same was no....
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....O had ignored the clauses/sub clauses related to ownership of the vehicles. The Ld. AO had not examined the clauses named 'Title, Identification, Ownership of the Vehicle', 'Surrender', 'Event of default' and 'Remedies' clauses. (Please refer the attached lease agreement, page 141 to 146 of the paper book). The clause 'Title, Identification, Ownership of the Vehicle' deals with the right and title of the vehicle. (Page 142 of paper book) This clause clearly explains that the vehicle under the lease shall be the sole and exclusive property of the lessor and the lessee shall have no right therein except the right to use the same in accordance with the leasing document and that the vehicle shall at all times remain the property of the lessor. The lessee also undertakes not to sell, assign, sublet and hypothecate the vehicle. 16.1. The clause 'Surrender' deals with delivery of the vehicle to the lessor on the expiry or earlier termination of the lease. (Page 144 of paper book) -In practice all the vehicles are returned to the lessor, who has the discretion to sell to a new party. Also once the vehicle is returned the Form 35 is signed and accordingly a No - objection is given by Lesso....
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.... depreciation on any asset u/s 32 only if such assets is owned by him and is used for the purpose of his business. The CBDT's views on the treatment of finance lease for the purpose of determining ownership and thereby depreciation allowance is however not aligned to the accountant's perspective of a finance lease. The principles governing eligibility of lessor to claim tax deprecation under the lease arrangement is enunciated by administrative guidelines issued by the CBDT in circulars 9/1943 and 2/2001. The circulars do not distinguish between the two kinds of lease arrangement and provides that in a lease other than a hire purchase, the lessor is eligible to claim depreciation provided the test of ownership and use of asset are satisfied. The principles laid down in Circular No. 9 dated 23-03-1943 provides that where the terms of agreements provides that equipment shall eventually become the property of the hirer or confer on the hirer an option to purchase the equipment, the transaction should be regarded as one of hire-purchase and the lessee will be entitled to depreciation in that case. Circular 2/2001 dated 09-02-2001 has clarified that AS-19 which requires capitalization o....
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....is case are peculiar in so far as the assessee has accepted deduction on the basis of actual expenditure in the past and, in one of such instances (AY 1997-98), the actual expenditure was more than the provision made in that year, as a result of which it got higher deduction than was claimed by it in the return of income. Hence, this decision is based more on the facts of the case; the legal aspect is adjunct to the factual one. With these observations, the addition is confirmed." 19.2. Aggrieved by this the assessee is in appeal before us. 20. At the time of hearing before us the ld. Counsel appearing on behalf of assessee by placing reliance on the paper book wherein assessee has given a chart containing the opening balance, amount charged in the P/L account by creating the provision and actual payments made during the assessment years and the closing balance since assessment years 1995-96 to 2004-05, based on the contents on the actual expenditure incurred and the provision created he substantiated that the provisions are scientifically computed to cover against the cost of free replacement during the warranty period. Therefore, he finally contended that after the decision of H....
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....ing the payment. Hence it is not proved that the receivables actually became bad. As the most vital information has not been filed, the amounts claimed to have been written off failed to qualify to be written off. As such the amounts were not allowed to be written off." 25.1. On appeal the ld. CIT(A) has confirmed the disallowance to the extent of Rs. 52,67,000/- and deleted the balance by observing as under :- "11.3. No doubt, trade debts are also a Balance sheet item. But, there is a specific provision, viz.(Sec.36(1)(vii)r.w.s. 36(2) of I.T.Act, for allowing deduction when the same are written off. In such a situation, it ahs to be examined whether the deduction can be allowed under any other section. The assessee has claimed deduction u/s 28. But that section deals with the items of income falling under the head 'Profits and gains of business or profession". It does not deal with deductions. The section under which such a deduction could be considered is Section 37 of the Income-tax Act, according to which, any expenditure laid out or expended wholly and exclusively for the purpose of the business is allowable as a deduction. But the Section applies only to expenditure "not ....
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.... pages 190 - 191 of the paper book. The said advances having been given by the appellant to various suppliers / processors in the normal course of its business for acquiring various raw materials and other services, the write off of the same as irrecoverable, is allowable as a normal trading loss while computing the income chargeable under the head "Profits and gains of business or profession", notwithstanding the fact that there is no specific provision for the allowability of the same, contained in Chapter IV-D of the Act, dealing with the computation of income chargeable under the head "Profits and gains of business or profession". In this connection reliance was placed in the Hon'ble Supreme Court in the case of CIT vs Mysore Sugar Company Limited - 46 ITR 649 (SC) and that delivered by the Hon'ble Madras High Court in the case of Devi Films Private Limited vs CIT - 75 ITR 301, 304 (Mad). It has been held in both the said decisions that that even though the claim for deduction of an amount of advance written off, where such advance had given by an appellant in the normal course and for the purpose of its business, other than on capital account, did not squarely fall under secti....
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....f business by the appellant was not in the nature of an investment. As the Hon'ble Supreme Court had held in the decision referred to above, it did not matter as to whether or not, the item for which the advance was given was already in existence, having been manufactured, at the time of giving the advance. The said trade advance, being not in the nature of an investment made for smooth operation of the business, is to be allowed as deduction if written off in the books of account as irrecoverable. Incidentally the Hon'ble Kolkata Tribunal while deciding the similar issue in the case of ITC Limited in the assessment year 1991-92 had considered the principles laid down by the Hon'ble Supreme Court discussed above, and thereafter allowed the claim for such write-off of advance. [ITA No 157/Kol/96 DCIT vs. ITC Ltd dated 30th April 2001]. Since such advances are given in the course of the business, it is incidental to the business and its write off may be allowed as a trading loss. 26.4. Further as per the A/R the findings of the CIT(A) is absolutely baseless that such an amount is capital in nature. He submitted that the CIT(A) has merely made a presumption that an advance with respe....