TaxTMI 
TaxTMI 
2017 (1) TMI 674
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....ts and in the circumstances of the case and in law, 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)....
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....nt year more than ninety percent of the raw materials required by the assessee were supplied 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 on....
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....sec. 92A(2)(j). 4.4. In view of the above facts and express provision of law, it is held that contention of the assessee is devoid of any merit and reference for determination of transfer 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 i....
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....ct 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. (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 ....
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....te the scheme of Section 92A. A plain reading of this statutory provision makes the legal position quite clear. The basic rule for treating the enterprises as associated enterprises is set out in Section 92A(1). The illustrations in which basic rule finds application are set out in Section 92A(2). Section 92A(1) lays down the basic rule 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 ....
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....e.What is thus clear that as long as the provisions of one of the clauses in Section 92A(2) are not satisfied, even if an enterprise has a de facto participation capital, management or control over the other enterprises, the two enterprises cannot be said to be associated enterprises. That is a what coordinate bench decisions in the cases 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 ....
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....iated enterprises, unless the criteria specified in sub-section (2) are fulfilled". In our considered view, therefore, the assessee and Blue Gems BVBA cannot be said to be associated enterprises. As these enterprises are not associated enterprises, the ALP adjustments in respect of the transactions between these enterprises were wholly unwarranted. 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.....
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....e off assessee as unexplained cash credit. During the course of assessment proceedings, assessee was asked to prove the identity, genuineness and creditworthiness of the persons from whom assessee had taken unsecured loan. In compliance of the same, assessee filed PAN and confirmations of the parties vide letter dated 20.10.2010 from whom unsecured loan was taken 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. Shr....
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....r assessment. In the instant case, assessing officer has completely ignored this fact while framing assessment in case of assessee. Once the scrutiny assessment has been completed in case of these parties, there can not be any doubt relating to existence / genuineness of the parties and it is illogical and absurd on the part of assessing officer to doubt their identity, genuineness and creditworthiness on the pretext that parties could not be found at Surat address. It is further submitted that assessing officer received all the relevant information from the parties in compliance of the letters issued on them. No addition can be made on the basis of report of DDIT(Inv), Mumbai as all the relevant details are already filed on record & even otherwise also, it is evident on perusal of statement of Shri Bhanwarlal Jain that he confirmed the existence of various concerns from whom unsecured 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 doe....
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.... assessing officer u/s 133(6) of the Act. It is further seen that the assessment order u/s 143(3) of the Act has also been passed in as many as 4 cases and copies of the same are also filed on record. Further, the bank statements of depositors have also been filed and it is seen that the loans received from all the 7 depositors have also been repaid in the same financial year. Now when all the depositors are assessed to tax and their assessment orders along with confirmation letters and bank statements are also filed on record, no addition can be made u/s 68 of the Act on the ground that identity/capacity of the parties have not been established. Similarly, adverse inference cannot be drawn on the basis of report of DDIT (Inv) as department has passed scrutiny assessment orders in various cases. Considering the overall facts and material on record, I am of the opinion that the ratio of Honourable Gujarat High Court decision in 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 i....
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....dingly find no reason to interfere with CIT(A)'s observation hereinabove deleting the impugned section 68 addition as well as interest expenditure incurred there upon. This Revenue's substantive ground on both these aspects is accordingly declined. 16. The Revenue's last substantive ground pleads that the CIT(A) erred in deleting disallowance of provision of forward contract payable of Rs. 34,35,000/- by holding that the entry passed in the books of account in respect of difference in exchange rate cannot be said to be in the nature of notional/unascertained liability. The assessee had made the impugned provision as per MTM certificate for the impugned assessment year followed by its reversal in the succeeding assessment year 2009-10 on account of foreign exchange rate difference as on 31.03.2008. The Assessing Officer disallowed the same by calling it as unascertained liability not allowable. 17. The CIT(A) accepts assessee's arguments 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 paya....
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.... It is further relevant to point out that in the subsequent year, when the contract has been cancelled, assessee has recognised the gain / loss based on the difference between exchange rate prevailing at the .end of the current financial year as per MTM certificate & the exchange rate prevailing as on the date of cancellation of forward contract which is in line with the accrual system of accounting. As such assessee has passed entry for loss only in respect of the balance amount & the exchange loss is divided into two years as per accrual system of accounting & the Accounting Standard of ICAI. Now, if any disallowance is made for the year under consideration in that case, deduction should be allowed of this amount in subsequent year, as assessee has claimed only balance loss i.e. loss arising on account of difference between exchange rate as on 31/03/2008 & exchange rate prevailing as on the date of cancellation. The addition made by assessing officer has thus, resulted into double 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: ....