AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2016 (12) TMI 551
X X X X Extracts X X X X
X X X X Extracts X X X X
....nses of Rs. 1,40,05,212/- claimed by the assessee. 3.1 The CIT(A) deleted the disallowance partly to the tune of 50% while upholding disallowance to the tune of 50% of IT Costs i.e. COE3 related expenses with the following observations:- " 3.3.3 I have considered the facts of the case , written submission and oral arguments of the appellant as against the observations/findings of the TPO/AO in their orders u/s. 92CA(3) / 143(3) of the Act. The submission and contention of the appellant are being discussed decided as under:- i. The TPO had also called for the details of IT costs and their basis for allocation. The Appellant submitted the relevant information, to the extent available in its possession. ii. The Appellant provided most of the information that the TPO had called for which was available in its possession. However, details relating to the basis of allocation were available with the Associated Enterprises(AE's) only. The Appellant had requested its AE's to provide such details during the course of the assessment proceedings with the TPO on specific request. To the extent the Appellant could provide these details , the same were accepted to be at arm's length by....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he same cannot be determined to be Nil and some value needs to be attributed. It would be unjust to the Appellant to disallow the entire amount of expenditure and determine the arm's length price as Nil. For want of adequate details, this international transaction cannot be benchmarked strictly as per the provisions of section 92C(1) and 92C(2) of the Act. In the immediate preceding year, under similar circumstances , 50% of the transaction value was adopted as ALP . Keeping in view the facts of the case and also the precedence in the case and the since most of the details were submitted except the basis of allocation , the ALP is held to be 50% of the transaction value of Rs. 1,40,05,212 i.e. Rs. 70,02,606. The Appellant gets partial relief. According this ground of appeal is partly allowed." 3.2 Learned AR placed on record order of Tribunal in assessee's own case for the assessment years 2002-03, 2003-04, 2004-05, 2005-06 and 2006-07 wherein the matter was remanded back to the file of the AO/TPO for deciding the matter afresh wherein the observations of the Tribunal in ITA no. 8359/Mum/2010 for assessment year 2005-06 vide orders dated 14-11-2014 are as under:- "6.In the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the dispute is about the basis of allocation and want of details in this regard. He has submitted that the copies of invoices raised in this regard by the AEs were furnished by the assessee along with respective allocation keys. Keeping in view this submission made by the learned counsel for the assessee as well as on perusal of the relevant details available on record,we agree with the contention of the learned counsel for the assessee that there is no justification in the action of the TPO in ignoring all these details and taking the ALP of the relevant transactions at Nil. In our Opinion, it is incumbent impomi the TPO to work out the ALP of the relevant transactions by following some authorized method and the entire cost borne by the assessee cannot he disallowed by taking the ALP at Nil keeping in view the facts and circumstances of the case and the relevant details furnished by the assessee. The learned counsel for the assessee in this regard has submitted that in the subsequent years i.e. assessment years 2005-06 and 2006-07, a similar issue was in i'olved in the assessee 's case and the learned CIT(Appeals) has allowed the expenses allocated to the extent of 50%. W....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l in aforementioned assessment years on similar issue. We order accordingly. 4. The next grievance of the assessee relates to claim of unutilized CENVAT credit u/s 145A of the Act. 4.1 We found that exactly similar issue has been dealt with by the Tribunal in its order for the assessment year 2006-07 in ITA no 8371/Mum/2010 vide orders dated 14-11-2014 . The relevant observations of the Tribunal at para 13 page 12 are as under:- "13.The next grievance of the assessee relates to claim of CENVAT u/s.145A. 13.1 We found that exactly similar issue has been dealt by the Tribunal in its order for A.Y.2003-04. The relevant observation of the Tribunal at para 16 page 24 is as under :- "24 As regards the issue raised in ground no. 8 relating to addition made on account of MODVAT credit by including the same in the value ofclosing stock, the Id. Representatives of both the sides have agreed that a similar issue has already been decided in assessee's own case for A.Y. 2001-02 wherein the same was restored by the Tribunal to the file of AO vide order dated 30th July 2009 passed in ITA No. 2363/Mum/2005 with a direction to make the adjustment on account of excise duty a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....imilar view had been taken by my predecessor while adjudicating the appeal for Assessment Year 2002-03 . The jurisdictional High Court has , since then, also taken a similar view in the Full Bench decision delivered in the case of Plastiblends Ltd. Vs. Additional CIT reported at 318 ITR 352. Consistent with this view and with the view taken by my predecessor , while deciding the appeal for Assessment Year 2005-06 , 2002-03 and 2004-05, I uphold the action of the Assessing Officer." 5.2 The learned AR placed on record order of the Tribunal in assessee's own case for the assessment year 2003-04 and 2005-06, wherein the issue has been decided against the assessee and in favour of the Revenue . The observation of the Tribunal in assessee own's case in ITA No. 8191/Mum/2010 vide orders dated 14-11-2014 are as under: "4. The next grievance of the assessee relates to claim of depreciation which has been dealt by the AO at para 14 and by CIT(A) at para 16. 4.1 Learned AR placed on record order of Tribunal in assessee's own case for the A.Y.2003-04, wherein the issue has been decided by the Tribunal partly against the assessee. The precise observations of the Tribunal at page 20 pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ination of fair market value of the property. The valuation report of the DVO was not received till the conclusion of the appellate proceedings before the learned CIT(A). The said report was received subsequently and the assessee is challenging and disputing the said valuation report of DVO on many counts which has been raised vide additional ground before the Tribunal, after receiving the valuation report of the DVO by the assessee. The said additional grounds are admitted in the interest of justice . The assessee is contending when the authorities below passed the orders , they did not had the benefit of valuation report of the DVO and in the interest of justice , the matter may be set aside and restored to the authorities below for de-novo determination of the issue on merits after considering the valuation report of DVO and the objections of the assessee. The ld. DR submitted that the matter may be set aside to the file of authorities below for de-novo determination of the issue on merits after considering the valuation report of the DVO. We have considered the rival contentions and perused the material on record. In our considered view and in the interest of justice, this i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e rival contentions and perused the material on record including case laws relied upon. We are of considered opinion that Section 50 of the Act is a provision with deeming fiction whereby for the purposes of computing capital gains in the case of depreciable assets , the gains arising from the transfer of the said assets has to be treated as capital gains arising from transfer of short term capital assets u/s 50 of the Act, but for the purpose of applicability of tax rate it has to be treated as long term capital gain if held for more than three years and brought to tax at rate@20% as stipulated u/s 112 of the Act. This proposition is supported by the order of co-ordinate benches of the Tribunal in the case of Smita Conductors Limited v. DCIT in ITA no. 4004/Mum/2011 for assessment year 2006-07 vide orders dated 17.09.2013. We order accordingly. 7. Now we will take Revenue appeal in ITA no 13/Mum/2012 for the assessment year 2007-08 8. The first grievance of the Revenue is with respect to the learned CIT(A) allowing 50% of IT charges i.e. COE3 expenses being Rs. 70,02,606/- out of total disallowance of COE3 expenses to the tune of Rs. 1,40,05,712/- by the AO. This issue has a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s long as the royalty payment does not exceed 3.5% of sales. The term "profits" as defined in the TCA does not distinguish between domestic or export profits. iii. In the application made to the SIA , the Appellant had explicitly mentioned that royalty payable would be 3.5% of sales, and it shall be capped to 10% of Castrol India's profit in any relevant financial year. The Appellant had also submitted to SIA details of total foreign exchange inflow and outflow during the period of collaboration. In the said working, the Appellant had evidently brought out foreign exchange outflow on account of Royalty @10% of profits before taxes. iv. The payments made by the appellant through the authorized dealers(bankers) are made in accordance with the prevalent exchange control regulations. Had the company made any excess payments , it would have been objected to by the authorized dealers , who have the delegated authority under the Foreign Exchange Management Act,1999 to administer compliance with exchange control laws in India. v. Viewed in the above background, the TPO's interpretation of the SIA approval was erroneous. The TPO has erred in disallowing royalty of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....id by the appellant works out to 1.68% of sales as against the approval obtained of 3.5% of sales. Also as per the agreement, the appellant is required to pay royalty on "profits" as long as the royalty payment does not exceed 3.5% of sales. The term "profits" as defined in the TCA does not distinguish between domestic or export profits. 2.21 In the application made to the SIA, the Appellant had explicitly mentioned that royalty payable would be 3.5% of sales, and it shall be capped to 10% of Castrol India's profit in any relevant financial year. The Appellant had also submitted to SIA details of total foreign exchange inflow and outflow during the period of collaboration. In the said working, the appellant had evidently bought out foreign exchange outflow on account of Royalty @ 10% of profits before taxes. Accordingly, the TPO's allegation that there is no question of any "implicit" approval seems to be erroneous. The payments made by the appellant through the authorized dealers (bankers) are made in accordance with the prevelant exchange control regulations. Had the company made any excess payments, it would have been objected to by the authorized deale....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the said transactions. The approval of SIA adopted by the TPO as basis to make TP adjustment in respect of royalty payment was untenable and even going by the said basis wrongly adopted by the TPO, no TP adjustment in respect of royalty payment was liable to be made. As per the said basis, the net sales of the assessee after excluding export sale and other income were to the extent of Rs. 1118.70 crores and the royalty paid thereon at Rs. 24.38 crore being less than the rate of 3.5% approved by SIA, there was no case of any excess payment made of royalty by assessee than approved by SIA to justify its disallowance by way of TP adjustment. In our opinion, the Id. CIT (A) could not appreciate these infirmities in the order of the TPO despite the same were specifically brought to his notice on behalf of the assessee and confirmed the TP adjustment made by the TPO in respect of royalty payment which was totally unjustified. We therefore, delete the addition made by the AO/TPO and confirmed by the Id. CIT on account of TP adjustment in respect of royalty payment and allow ground no. 3 of the assessee's appeal. x x x x x x x x x x x x 43 The first issue ra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ree that the issue is covered in favour of the assessee by the decision of the Tribunal in earlier years. The Tribunal in Revenue's appeal for the assessment year 2005-06 in ITA No. 8359/Mum/2010 vide orders dated 14-11-2014 held as under:- 8. The next grievance of the Revenue relates to expenditure on advertisement films, which has been dealt by the AO at para 13 and by CIT(A) at para 15. The precise observation of the CIT(A) are as under :- "Ground no. 12 of the appellant is reproduced as under:- "12.Iin treating expenditure on advertisement films as capital expenditure Instead of revenue and without prejudice, in not allowing depreciation thereon. 12.1 The Hon'ble ITAT, while adjudicating the Revenue's appeal for Assessment Year 2001-02 (ITA No. 3245/Mum/2005) has held that expenditure on advertisement films is revenue expenditure and not capital expenditure. 12.2 Consistent with this view and the view taken by me while deciding the appeal for Assessment Year 2002-03 and Assessment Year 2004-05, direct the Assessing Officer to allow expenditure on advertisement films. Accordingly ground no. 12 is allowed." 8.1 We found that the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....year 2007-08 shall apply mutatis mutandis to the identical issue of disallowance of IT charges i.e. COE3 expenses during this year. We order accordingly. 14. The next grievance of the assessee is with respect to claim of unutilized CENVAT credit u/s 145A of the Act. We have already adjudicated this issue in para 4 of this order while adjudicating the assessee's appeal for the assessment year 2007-08.Our above decision for the assessment year 2007-08 shall apply mutatis mutandis to the identical issue of claim of unutilized CENVAT credit during this year. We order accordingly. 15. The next grievance of the assessee relates to the re-computation of the claim of depreciation on assets located at Silvasa although the assessee had specifically not claimed depreciation in the past. We have already adjudicated this issue in para 5 of this order while adjudicating the assessee's appeal for the assessment year 2007-08.Our above decision for the assessment year 2007-08 shall apply mutatis mutandis to the identical issue of claim of re-computation of the claim of depreciation on assets located at Silvasa during this year. We order accordingly. 16. The assessee has sold fixed assets o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....has been allowed by the department. The claim of the appellant that it had not claimed depreciation but the depreciation was allowed to the appellant by the Department and this issue was agitated by the appellant. This issue has been decided against the appellant by the Hon'ble Bombay High Court. In this set of facts it is clear that what has been sold by the appellant are capital assets forming part of assets in respect of which the depreciation has been allowed under the act and accordingly the provisions of Sec. 50 are squarely applicable in the appellant case. Further, as per provisions of Sec. 50C of the Act where the consideration declared to be received or accruing as a result of transfer of land or building or both is less that the value adopted , assessed or assessable by any authority of State Government ('Stamp valuation Officer') for the purpose of payment of Stamp Duty in respect of such transfer, the value so adopted or assessed or assessable shall be deemed to be value of the consideration received or accruing for the purposes of section 48 of the Act. Accordingly the issue raised by the appellant in Sub Ground 8.1 and 8.2 of the appeal are not considered to be accep....