TaxTMI 
TaxTMI 
2017 (1) TMI 674
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....the Ld.CIT (A) erred in deleting addition made of Rs. 5,22,64,779/- u/s. 92CA(3) by holding that the TPO had initially placed reliance on mean margin ratio of six entities including exchange difference income but while passing the order u/s. 92CA(3), the addition had been proposed by taking the margin of only two entities excluding exchange difference income. [2] The Ld.CIT(A) ought to have confirmed the addition as these issues had already been considered and elaborately discussed by the Transfer Pricing Officer and thereafter based on valid reasoning order u/s. 92CA(3) dtd. 28.10.2011 was passed by the TPO which fact was not considered by the first appellate authority. [3] On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in admitting and deciding the appeal in contravention of the provisions of section 144C of I.T. Act. [4] On the facts and in the circumstances of the case and in law, the Ld. CIT[A] failed to appreciate that no objection filed by the assessee before the A.O., after receipt of draft assessment order as per the explicit provision of section 144C(2)(b)(ii) of I.T. Act. 3. In the cross objection, the assessee has raised a griev....
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....d by the said concern. That was not the situation in the present case. The detailed submissions made by the assessee, however, did not find any favour with the Assessing Officer. He rejected these submissions and observed as follows: 4.2 The contention of the assessee has been considered. The assessee has stated that M/s. Blue Gems BVBA does not fall under the definition of Associate Enterprise as defined u/s. 92A(1) & (2) of the Act. It has also stated that report u/s.92E is required to be filed only after transactions are done with associate enterprise. Further, it has stated that it does not fall within the deeming provisions of section 92A(2). The contention of the assessee is not correct. For the sake of clarity, the relevant provision of sec.92(A)(2)(j), (k) and (m) are reproduced below. Meaning of associated enterprise 92A.(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....
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.... pricing is correctly made. 5. The Assessing Officer thus proceeded to treat the assessee and Blue Gems BVBA as associated enterprises under section 92A of the Act. The international transactions entered into between these entities were, thus, subjected to arm's length price determination. On a reference being made to the Transfer Pricing Officer, an ALP adjustment of Rs. 5,22,64,779 was made. On the matter being carried in appeal before the CIT(A), even before deciding whether the assessee and Blue Gems BVBA can indeed be held to be 'associated enterprises', the CIT(A) proceeded to deal with examine correctness of the ALP adjustment impugned in appeal before him, held it to be unsustainable on the facts of the case and in law, and then observed that "as addition stands deleted on merits of the case, no discussion is made as to whether Blue Gems BVBA is associated enterprises of the assessee or not as the same is only academic in nature". For the reasons we will set out a little later in this order, it is not really necessary to take note of the facts regarding ALP adjustment in more detail. Suffice to the note that none of the parties is satisfied with the stand so taken by the C....
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....or more intermediaries, in the management or control or capital of the other enterprise. (2) For the purposes of sub-section (1), two enterprises shall be deemed to be associated enterprises if, at any time during the previous year,- (a) one enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in the other enterprise; or (b) any person or enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in each of such enterprises; or (c) a loan advanced by one enterprise to the other enterprise constitutes not less than fifty-one per cent of the book value of the total assets of the other enterprise; or (d) one enterprise guarantees not less than ten per cent of the total borrowings of the other enterprise; or (e) more than half of the board of directors or members of the governing board, or one or more executive directors or executive members of the governing board of one enterprise, are appointed by the other enterprise; or (f) more than half of the directors or members of the governing board, or one or more of the executive directors or members of the governing....
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....e that in order to be treated as associated enterprise one enterprise, in relation to another enterprise, participate, directly or indirectly, or through one or more intermediaries, "in the management or control or capital of the other enterprise" or when "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" . Section 92(A)(2) only provides illustrations of the cases in which such an enterprise participates in management, capital or control of another enterprise. In other words, what Section 92A (1) decides is the principle on the basis of which one has to examine whether or not two or more enterprise are associated enterprise or not. The principle is, as we have noted above, that one of the enterprise, in relation to other enterprise, participate, directly or indirectly, in the management or control or capital of the other enterprise and that persons who participate in such management, control or capital of both the enterprises are....
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....ses of Orchid Pharma Ltd Vs DCIT [(2016) 76 taxmann.com 63 (Chennai - Trib.)] and Page Industries Ltd Vs DCIT {(2016) 159 ITD 680 (Bang)] also hold. 9. The case of the revenue hinges on application of clause (j) of Section 92A(2). That is the only clause invoked by the Assessing Officer, and if this clause does not apply to the facts of this case, that is end of the matter. This clause provides that "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". In the present case, the assessee is a partnership concern and the assessee firm, therefore, cannot be said to be controlled by "an individual" which is starting point for Section 92A(2)(j) being invoked. In the TPO's order, a reference is also made to some other clauses of Section 92A(2) as follows: The firm has made substantial purchases from M/s. Blue Gems BVBA. The partners of the firm are three brothers viz. Shri Piyush M. Shah, Mukesh M. Shah, Dilip M. Shah and their wifes/son, together holding the entire partnership stake. The fourth brother Nareshkumar Shah, along with his wife Surekhab....
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....d. For this short reason, and without going any further into the matter, we approve the impugned deletion of ALP adjustment. The plea of the assesse, in cross objection, is upheld and, for that reason, grievance of the Assessing Officer, in appeal, is dismissed as infructuous. 11. Ground nos. 1 to 4, raised in the appeal filed by the Assessing Officer, are dismissed as infructuous, and grievances raised by the assessee, in the cross objection, are allowed. 12. Revenue's next substantive ground seeks to restore section 68 unexplained cash credits addition of Rs. 8,50,00,000/- followed by disallowance of interest expenses thereupon of Rs. 66,94,929/-, made by the Assessing Officer and deleted in the lower appellate proceedings. 13. We come to the relevant facts first. Assessee's relevant books would show loans of Rs. 50 lakhs, Rs. 1.50 crores, Rs. 2 crores, Rs. 1.50 crores & Rs. 1 crores each; obtained from M/s Saransh Gems (Surat), Impex Gems, Jinesh Gems, Minakshi Exports & Laxmi Diamonds, Milan & Co. And Navkar Diamonds (all Mumbai based entities). It filed confirmation and PAN details of all the said entities. The Assessing Officer issued section 133(6) notice as well as secti....
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....en during the year under consideration. Assessee also filed copy of assessment orders passed u/s 143(3) of the Act in case of various parties from whom unsecured loans have been received. Assessing officer further issued notice u/s 133(6) of the Act calling for information from various parties from whom unsecured loan was received during the year under consideration. In response, the parties filed following details: Sr. No. Name of Parties Details 133(6) submitted In response to notice u/s 1. Shri Jayprakash S. Jain (Prop. M/s Milan & Co.) * Confirmation of account * * Acknowledgment of return of income * Bank statement * Tax Audit Report 2. Shri Manish A. Agarwal (Prop. M/s Laxmi Diamonds) * Confirmation of account * Acknowledgment of return of income * Bank statement * Tax Audit Report 3. M/s Meenakshi Exports * Confirmation of account * Acknowledgment of return of income * Bank statement * Tax Audit Report 4. M/s Navkar Diamonds * Confirmation of account * Acknowledgment of return of income * Bank statement * Tax....
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....ed loans have been received as complete details of concerns being operated from the premises i.e. 316, Panchratna, Opera House, Mumbai was given by him along with their assessment details. In view of these facts, the contention of assessing officer that no books of accounts / stock is found does not have any bearing so far as assessee is concerned especially considering the fact that loans have been repaid in the same financial year." "Creditworthiness of the parties from whom assessee had taken loan can not at all be doubted as these parties are regularly filing their return of income and capability to give loan to assessee is clearly evident from the return of income filed by theses parties & their returns of income have been accepted in the scrutiny assessments made in their respective cases. Thus, looking to the totality of facts & circumstances of instant case, it is clear that assessing officer has made this addition merely on the basis of conjectures and surmises and hence, the addition made by assessing office needs to be deleted. Assessee places reliance on jurisdictional Gujarat High Court decision in case of Dy. CIT v. Rohini Builders. (256 ITR 230) (Guj) where it wa....
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.... case of M/s Rohini Builders 256 ITR 230 (Guj) is squarely applicable and no addition can be made u/s 68 of the Act as identity and capacity of depositors and genuineness of transactions stands very much established. Hence, addition made by assessing officer is hereby deleted. As the addition made on account of unexplained cash credit stands deleted, the disallowance of interest of Rs. 66,94,929/- is not sustainable and, hence, the addition made on this disallowance is also hereby deleted." 15. We have heard both the parties. Learned Departmental Representative strongly argues that the Assessing Officer had rightly made the impugned addition. Case record reveals that the assessee had filed confirmation of accounts, acknowledge of return of income, bank statements and tax audit report in all seven cases apart from trading account, P&L account and balance sheet of the last entity M/s Jinesh Gems. It has further come on record that the assessee has been able to prove repayments of the loan sums in question in the impugned assessment year. This fact is further not disputed before us. It is therefore clear that the assessee has filed all the relevant details so as to prove identity, ....
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....nts as follows :- "7.1. During the course of assessment proceedings, vide order sheet entry dated 01.11.2011, the assessee was required to give the full details of the provision entry of Rs. 34,35,000/- on account of forward contract payable. The assessee vide its submission dated 16.12.2011 submitted that the account shown as payable as per MTM certificate for A.Y. 2008-09 was reversed in the A.Y. 2009-10. Assessing officer observed that this liability which is worked out as on 31.03.2008 has not crystallised as on that date. According to A.O the same represents unascertained liability & is therefore, not allowable as expenditure under the I. T Act. On the basis of these observations, provision of forward contract payable of Rs. 34,35,000/- has been disallowed and added to the total income of assessee. Submissions of the Appellant 7.2. During the course of appellate proceedings, the learned AR made various submissions; the relevant portion of the same is reproduced hereunder: "In the course of appellate proceedings, it is submitted that assessing officer has erred in making addition of Rs. 34,35,000/- to the total income of assessee on account of provision for forward cont....
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....ouble taxation as after set off of provision entry of Rs. 34,35,000/- made at the end of current year, only the balance amount is claimed as deduction in subsequent year." Decision: 7.3. I have considered the reasons given by assessing officer & also the submissions of appellant. The assessee has made provision in respect of forward contract entered into by it on the basis of difference in exchange rate prevailing as on the date on which forward contract has been booked and the exchange rate prevailing at the end of the year i.e. on 31.03.2008 as per MTM certificate issued by ABN Amro Bank. It is not in dispute that assessee is following mercantile method of accounting and as per this method, all the expenses/gains which pertains/arises during the year under consideration is required to be considered in the Profit and Loss account for that year itself. The provision entry has been made because the exchange as on 31st day of March has gone up as compared to the exchange rate of forward contract prevailing as on the date of transaction. In my view, the entry passed in the books of accounts in respect of the difference amount cannot be said to be in the nature of notional/unascert....