TaxTMI 
TaxTMI 
2016 (11) TMI 245
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....er CASS. The assessee furnished the information called for from time to time against the issuance of statutory notices u/s 143(2) and 142(1) of the Act. 2.1 During the scrutiny proceedings, it was noticed that the assessee has entered into International Transactions with associated enterprises amounting to Rs. 19,39,92,795/- for the financial year 2010-11. As per Section 92CA of Income tax Act, 1961 the case was referred to Addl. Commissioner of Income Tax (Transfer Pricing) with the prior approval of Commissioner of Income Tax-II, Hyderabad on 19-09-2013. On receipt of the order dtd:27.01.2015 of the TPO, a draft assessment order was passed on 30.03.2015 assessing the income of the assessee at Rs. 72,65,46,424 / -. The above mentioned draft order was served on the assessee on 30.03.2015. Aggrieved by the additions made in the draft assessment order dtd: 30.03.2015, the assessee filed objections before the Dispute Resolution Panel on 27.04.2015. The DRP issued directions u/s. 144C(5) of the Act vide its order dtd: 09.12.2015 which was received by the AO on 15/12/2015. Accordingly the assessment incorporating the directions of the DRP is completed as provided u/ s. 144C(13) of th....
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....n rupees at the rate prevailing on the date of transaction. If the reasoning of the DRP is to be followed then LIBOR rate will be inapplicable to India. He, therefore, submitted that the reasoning of DRP is irrational, absurd and perverse. 6. The ld. DR, on the other hand, relied on the orders of revenue authorities. 7. Considered the submissions of both the counsels and perused the material facts on record. The transaction under consideration is international transaction as the assessee lent money to its AEs. The economic activities happening in the international market is important rather than economic impact if the loan is advanced in Indian rupees. It is fact that these transactions are compared with uncontrolled environment to determine ALP. The fact that advance was lent outside India the interest rate prevailing in the international market is relevant. The DRP/TPO argues that these loans were originated in Indian currency and recorded, as such, in the assessee's books. Hence, it has to be analysed in the Indian ALP is not acceptable. The money lent outside India is always converted into foreign currency and accordingly recorded. But, how the AE had recorded. Obviously not in....
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....the year. The entire borrowings have been used for giving loans and advances and for other business purposes. We may also point out that many of the investment in shares are in demat form and dividend thereon is electronically credited to our bank account directly. Accordingly no expenditure during the year has been incurred in the routine course of business." 8.2 After considering the submissions of the Assessee, the AO observed that the assessee may have large reserves which could be deployed by it in any manner of its choice. Still, if it employs borrowed funds for making investments which yield tax exempt income, provisions of section 14A are invokable. When there is a direct and proximate connection between the investments and borrowed funds, disallowance is warranted. The AO computed disallowance of expenditure under Rule 8D as under: A = 11,70,31,307 (Interest expenses not directly attributable to particular receipt) Description On last day of PY On first day of PY Average B= Exempt investments 12,84,52,151 15,56,62,151 14,20,57,151 C=Total assets 7,49,96,07,451 7,23,91,67,498 7,36,93,87,474 i) Direct expenditure 0 ii)....
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.... Ld. AR submitted that the actual expenditure that is in contemplation u/s 14A(1) of the Act is the 'actual' expenditure in relation to or in connection with or pertaining to exempt income. The corollary to this is that if no expenditure is incurred in relation to the exempt income, no disallowance can be made u/s 14A of the Act. Kind attention is invited to the decision of the Delhi High Court in Maxopp Investment Ltd. Vs. CIT reported in 347 ITR 272. 9.5 He relied on the following case laws: 1. CIT Vs. Metalman Auto Pvt. Ltd. (2011) 336 ITR 434 (P&H) 2. Wimco Seedlings Ltd. Vs. DCIT, 293 ITR AT 216 (Delhi.) 3. CIT Vs. Eicher Ltd. [2016] 101 TTJ 369 (del.) 4. CIT Vs. Deepak Mittal [2013] 361 ITR 131 (P&H) 5. CIT Vs. Consolidated Photo & Finvest Ltd., [2013] 358 ITR 310(Del.) 10. Ld. DR relied on the orders of revenue authorities. 11. Considered the submissions of both the counsels and perused the material facts on record. The AR submitted that the assessee has sufficient own funds which are interest free to make investment. He also relied on various decisions, in particular, Reliance Utilities & Power Ltd. (supra). We cannot take this argument furth....
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....ould be considered instead of average of the total investments. 11.3 considering the above discussion, we direct the AO to recalculate the disallowance as per rule 8D as per the above guidance. Accordingly, ground raised by assessee is allowed. 12. As regards the disallowance of commission payment of Rs. 36,25,927/- (Ground Nos. 11 & 12), from the Profit & Loss A/c of the assessee for the year 2010-11 under consideration, the AO observed that an amount of Rs. 2,22,58,268/- was debited towards Commission. In this regard, the AR of the assessee was asked to produce the details of commission paid. The AR of the assessee produced the details of commission payments vide his letter dated 23/10/2013. 12.1 During the scrutiny proceedings of the assessee's own case for the A.Y. 2010-11, the then Assessing Officer, tracked the commission paid to Mr. CP. Sharma. Even insisted, the AR of the assessee, to produce Mr. CP Sharma in person before the Assessing Officer, the same was not done. This year also the AR of the assessee was asked to produce the same person which he could not make in reality. 12.2 When these issues were confronted to the AR, he submitted that the payments a....
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....pect of payments made TDS is deducted at the rate as applicable. He submitted that the assessee company filed TDS statements giving the details of deduction of tax at source. Mr. Sharma is not an employee of the assessee company. He has enough contacts to bring the business which the assessee company utilized. The payment of commission is a normal trade practice in this line of business and every transport company pays commission for procuring business. No summons were given to Mr.C.P. Sharma for his appearance by the Assessing Officer. On the sole ground that Mr.C.P.Sharma was not present before the Assessing Officer and he does not have a P.A Number the entire payment was disallowed. The ld. AR invited bench attention to the pages 54 to 60 of Vol. 1 and pages 36 & 37 of Vol. II. 14.2 The ld. AR submitted that it is not possible for the assessee to enforce the attendance of Mr.C.P.Sharma. More over his services were discontinued in the later years. Without issue of summons Mr.C.P.Sharma would not appear before the Assessing officer and no summons were issued during the assessment year. No attempt was made to examine him on commission at Meerut (Place of residence of Mr. C.P.Sha....
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....ble because the share issue was not for public subscription. During F. Y 2007-08, shares were allotted by assessee to FID Funds (Mauritius) Ltd on preferential basis. The issue was private placement issue. Therefore, they are not covered u/s 35D(2)(c)(iv) that is "in connection with the issue, for public subscription, of shares". Merely because, an incorrect claim was accepted in an earlier year, the claim would not be validated. Therefore, the claim u/s 35D is not allowed by the AO. 18. Aggrieved by the above disallowance, the assessee filed objection before the DRP which in turn rejected this objection with the observation that it find no reason to interfere with the order of the A.O. 19. Before us, the ld. AR submitted that the assessee incurred a sum of Rs. 88,69,418 towards share issue expenses in the assessment year 2008-09. The appellant claimed 1/5th of the above amount viz. Rs. 17,76,884 as deductible expenditure u/s 35D(2)(c)(iv) of the I.T. Act. The said amount was allowed in the assessment years 2008-09 and 2009-10. It was not allowed in the assessment year 2010-11 and the appeal is pending before the Commissioner of Income tax(Appeals). For the assessment year 20....
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....s written off. Qualified Institutional Buyers (QIBs) are a class of investors as a part of the large investor community and the companies sought for QIB issues because the funds can be raised within a short span. This is an extremely important investment for larger investors and since the buyers are only a class of investors, the issue of shares to QIB have been considered as public issue. The expenses in connection with public issue of shares or debentures of the company are allowable. Reliance is placed on CIT vs. Shree Synthetics Ltd (162 ITR 819 (MP). Hence on the merits of the issue, the QIB expenditure can be treated as Revenue expenditure and eligible for deduction u/s 35D of the I.T. Act is confirmed. Hence on merits of the issue as well as the fact that the same issue has been allowed in the earlier years and the Department cannot came upon in appeals in the subsequent years would be the reason to dismiss the Departmental appeal. We confirm the order of CIT(A) with respect to Qualified Institutional Buyers expenses and dismiss the departmental appeal on this issue. In the result, the departmental appeal for the AY 2007-08 and 2008-09 are dismissed." From the above decis....
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....e remaining divisions, the income and expenses attributable to the shipping division are to be excluded. 23.1 Ld. AR submitted that the assessee has included all expenses pertaining to the shipping division in the accounts separately maintained for the shipping division and arrived at the income/loss of the said division in accordance with the accounts maintained. This is done to ensure that the account of other divisions is not effected due to inclusion of shipping division's business income or expenditure. 23.2 He submitted that according to the Assessing Officer, the administrative expenses of the company other than seaways division is Rs. 15,17,86,677. The working and the composition of this amount arrived at by the Assessing Officer is not exhibited in the assessment order and the appellant does not have any working given to it. The Assessing Officer calculated the turnover of the shipping division in the proportion to the total turnover at 3.94%. Applying the said proportion of 3.95% to the entire administrative expenses of Rs. 15,17,86,677, the Assessing Officer arrived at a notional allocation of the expenses to the shipping division at Rs. 59,95,071. 23.3 The Asse....
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....onnel etc. These informations are not available on the record. We have noticed from the financial statement of the shipping division that no management personnel expenditures or management related expenses were debited to P & L A/c. It is a fact that management time and personnel involve running of any business activity. The assessee has not brought anything on record to prove that the shipping division can function independently without any management involvement. In absence of such information and for the sake of clarity and justice, we find it appropriate to remit this issue to the file of the AO to determine the share of head office expenditure for this division as the assessee also not clear with the quantum of expenditure adopted to allocate the share of expenditure by the AO in the first place. We direct the assessee also to submit the relevant details of expenditure and extent of management involvement in running of this division. In the result, this ground of assessee is allowed for statistical purposes. 26. As regards disallowance of Employees Stock Option Expenses of Rs. 60,48,569/- (Ground No. 19), it is observed that the assessee filed an objection before the DRP th....
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....dispute as claimed by the appellant. For the assessment year 2011-12 the above amount was not allowed by the Assessing Officer on the plea that such claim can only be made through a revised return and not by way of a letter. When the issue was objected to before the Dispute Resolution Panel, the Dispute Resolution Panel referred to the judgment of the Orissa High Court and the decision of the Hon'ble Supreme Court in Goetze (India) Ltd. Vs. D.C.LT reported in 284 ITR 323 and rejected the claim on the plea that in the absence of revised return of income the claim cannot be allowed. 27.2 Ld. AR contended that the decision of the Hon'ble Supreme Court is applicable only in the course of assessment proceedings before the Assessing Officer and does not impinge upon the powers of the Hon'ble Tribunal u/s 254 of the I.T Act to consider the claim. This aspect of the matter has been set out by the Hon'ble Supreme Court in Goetze's (India) Ltd. Vs. D.C.I.T case itself. Subsequently a spate of judgments of various courts have been delivered to the effect that the decision of the Hon'ble Supreme Court in Goetze's case has no application before the appellate authoriti....