TaxTMI 
TaxTMI 
2017 (4) TMI 231
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....ditions confirmed by the learned Commissioner of Income-tax (Appeals) and the Revenue has filed the appeal challenging the relief granted by the learned Commissioner of Income-tax (Appeals). Certain issues in all the appeals filed by the assessee are identical in nature and they are being considered together. 3. The first common issue urged by the assessee relates to the disallowance of the lease rental paid to IBM for taking computers on lease. The assessee had treated lease as "financial lease" in its books of account and accordingly claimed interest portion as expenditure. However, in the Income-tax computation, the assessee treated the same as "operating lease" and accordingly claimed the entire lease rentals (principal + interest portion) paid by it as revenue expenditure. The Assessing Officer, however, treated the nature of lease as "financial lease" and accordingly disallowance claim for deduction of the principal portion of the lease rental. The learned Commissioner of Income-tax (Appeals) also confirmed the same. 4. The learned authorised representative submitted that an identical issue was considered by the co-ordinate Bench of the Tribunal in the case of Dow Chemi....
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....ers of the customers were high as much as 700, the assessee could not obtain the confirmation letters from all the customers. However, the assessee has obtained confirmation letters from majority of the customers and in respect of the remaining parties, the assessee has furnished the ledger account copies to prove that the advances were adjusted against the subsequent sales. The learned authorised representative submitted that the learned Commissioner of Income-tax (Appeals) has given a partial relief in the assessment year 2005-06, i.e., he has deleted the addition wherever the confirmation letters were filed along with the permanent account numbers. In respect of the other two years, the learned Dispute Resolution Panel had directed the Assessing Officer to delete the disallowance, if the advances have been adjusted against the subsequent sales. The learned authorised representative pleaded that the impugned additions need to be deleted since they have been received from the regular customers during the course of regular business operations. 9. On the contrary, the learned Departmental representative submitted that the assessee has failed to prove the genuineness of the advanc....
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....plain the reasons, which shall be examined by the Assessing Officer in accordance with the law. Accordingly we set aside the additions confirmed by the learned Commissioner of Income-tax (Appeals) in the assessment year 2005-06 and the orders passed by the Assessing Officer in other two years and restore them to the file of the Assessing Officer for examining them afresh in the light of discussions made supra. 11. Next common issue contested relates to transfer pricing adjustment made on payment of royalty. The assessee has paid royalty at five per cent. on domestic sales and eight per cent. on export sales to its associated enterprise named M/s. Dow, Netherlands. The Assessing Officer noticed that M/s. Dow, UK has paid royalty to Dow, Netherlands at three per cent. on domestic sales and five per cent. on export sales. Hence the Assessing Officer made transfer pricing adjustment by adopting rate of three per cent. and five per cent. as given by Dow, UK. The learned authorised representative submitted that an identical issue was considered by the co- ordinate Bench of the Tribunal in the assessee's own case in I. T. A. No. 1443/Mum/2011 relating to the assessment year 2004-05....
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....ssed that even after application of the tranactional net margin method (TNMM) to test the arm's length nature of its transaction of payment of royalty, no adjustment was necessitated. Be that as it may, the Transfer Pricing Officer noted that another associated enterprise of the assessee namely, UK King Lynns Plant (in short "Dow, UK") was also paying royalty to Dow, Netherlands, which was at lower rates. Based on the above, the Transfer Pricing Officer determined that the royalty paid by Dow, UK was a comparable transaction and accordingly determined the arm's length royalty payment at three per cent. for domestic as well as five per cent. for the gross export sale, which were the rates at which royalty was paid by Dow, UK to Dow, Netherlands. In the assessment year 2003-04 as also in the instant assessment year, the assessee had challenged the aforesaid action of the Transfer Pricing Officer. Firstly, it was canvassed that the rate of royalty payments having been approved by the Government of India, such rates constitute a valid comparable uncontrolled price data and no further adjustment was required to the stated value of the royalties paid. Secondly, the learned repres....
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....nt as also by the Reserve Bank of India constitutes a valid comparable uncontrolled price data has been affirmed by the honourable Bombay High Court in the case of CIT v. SGS India Pvt. Ltd. (I. T. A. No. 1807 of 2013 dated November 18, 2015). In this context, the learned representative for the assessee pointed out that before the honourable High Court, the Revenue had relied upon Press Note No. 9 (2000 series) issued by the Central Government for adopting the rates of royalty prescribed therein for benchmarking royalty payable. In this context, reference was made to para 8 of the order of the honourable High Court, wherein clause (IV) of the Press Note was specifically noted, which provided for payment of royalty up to eight per cent. on export sales and five per cent. on domestic sales. The learned representative for the assessee explained that though clause (IV) of Press Note No. 9 (2000 series) considered by the honourable High Court related to payment of royalty by a wholly owned subsidiary to its off shore parent company, but similar treatment has been extended even to other entities also vide A. P. (DIR Series) Circular No. 5 dated July 21, 2003 issued by the Reserve Bank of....
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....e Kerala High Court in another decision. 16. On the contrary, the learned Departmental representative submitted that the decision rendered by the honourable Calcutta High Court in the case Exide Industries Limited (supra) has since been stayed by the honourable Supreme Court in the case of CIT v. Exide Industries Ltd. in SLP CC No. 12060008 dated September 8, 2008. Subsequently the honourable Supreme Court in SLP CC No. 22889/2008 dated June 27, 2007 in the case of CIT v. Exide Industries Ltd. has held that, during the pendency of appeal, the assessee has to pay tax as if section 43B(f) is on the statute book. Accordingly, the learned Departmental representative submitted that the disallowance of provision for leave encashment is required to be made under section 43B(f) of the Act. 17. We heard the parties on this issue and perused the record. As submitted by the learned Departmental representative, the honourable Supreme Court, in the case of Exide Industries Ltd., (referred supra) has stayed the decision rendered by the honourable Calcutta High Court and further held that the disallowance should be made in terms of section 43B of the Act, during the pendency of appeal, as i....
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....d claim the Assessing Officer asked the assessee following queries : (a) Whether samples issued from manufactured goods or trading goods ? (b) Whether expenditure already included in purchasing ? However the assessee gave only break-up details of "sample expenses". The Assessing Officer noticed that the assessee did not answer the specific queries raised by him and further the assessee also did not substantiate the claim with evidences. Accordingly he disallowed the claim of the assessee. Before the learned Commissioner of Income-tax (Appeals), the assessee contended that the sample expenses are allowable under section 37(1) and also placed reliance on various case law. The learned Commissioner of Income-tax (Appeals) observed that there is no dispute that the expenses incurred on distribution of free samples is allowable under section 37(1) of the Act. He further observed as under : "The Assessing Officer disallowed such expenses on the ground that the queries asked have not been replied and further observing that for manufacturing the samples no separate purchases are made and raw material and other incidental expenses are common. Therefore, unless t....
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....ncome-tax (Appeals) on this issue and restore this matter to the file of the Assessing Officer for examining the same afresh. The assessee is directed to answer the specific queries raised by the Assessing Officer and also produce other information and explanations that may be called for by the Assessing Officer to substantiate the claim. 24. The next issue relates to the claim of set off of brought forward unabsorbed depreciation. Since this issue requires verification at the end of the Assessing Officer, we restore the same to his file with the direction to compute and allow the correct amount of brought forward unabsorbed depreciation. 25. In the assessment year 2006-07, the assessee has raised the grounds relating to charging of interest under section 234C and section 234D and also relating to non-granting of correct amount of interest under section244A of the Act. The learned authorised representative submitted that interest under section 234C of the Act is required to be computed on the returned income. With regard to other interest chargeable under section 234D and payable under section 244A, the learned authorised representative submitted that they are consequential i....