TaxTMI 
TaxTMI 
2018 (3) TMI 423
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....f the IT Rules even though the same was made operative from 24th March, 2008 and was not applicable for A.Y. 2007-08. No nexus between the interest paid on borrowed funds and tax free income was established by the authorities below. At any rate without prejudice the additions as made are excessive. 3. Facts of the case, in brief, are that the assessee company is manufacturing toughened glass, laminated glass and float glass. The assessee has a financial and technical collaboration with Asahi Glass Company Limited Japan (AGC). Asahi India Glass Limited is India's largest manufacturer of world-glass automotive safety glass. It performs all the functions, starting from purchase of raw materials, processing it into final product till the stage of carrying out the marketing functions and after sales service. It filed its return of income on 30.10.2007 declaring loss of Rs. 65,37,51,392/- under the normal provisions and book profit of Rs. 42,25,48,996/- u/s 115JB of the I.T. Act. During the course of assessment proceedings, the Assessing Officer observed that the assessee company has shown dividend income of Rs. 8,27,937/- and long term capital gain at Rs. 60,12,597/- which have been ....
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....ome or the long term capital gain. Referring to various decisions, he submitted that no disallowance u/s 14A is called for when the Assessing Officer has not pointed out any expenditure which according to him has been incurred by the assessee. He, however, fairly conceded that under identical facts and circumstances, the Tribunal in assessee's own case for assessment year 2006-07 vide ITA No.4242/Del/2010 order dated 06.04.2016 has restored the issue to the file of the Assessing Officer. 8. Ld. DR on the other hand submitted that since the Tribunal in preceding assessment year has restored the issue to the file of the Assessing Officer, therefore, for this year also, this issue should be restored to the file of the Assessing Officer for adjudication afresh in the light of the decision of the Tribunal in assessee's own case in the preceding year. 9. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the ld. CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer made disallowance of Rs. 14,72,158/-u/s 14A and also added the....
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....peal no.2 which reads as under :- "That the learned CIT(A) erred on facts and under the law in not deleting interest charged u/s 234B and 234C of I.T. Act in respect of disallowance on account of 'provision for bad and doubtful debts' and 'deferred tax liability' made under MAT provision of the I.T. Act which were inserted with retrospective effect after filing the income tax return." 13. Facts of the case, in brief, are that the Assessing Officer in the assessment order has not discussed the issue relating to charging of interest u/s 234B and 234C of the I.T. Act. However, before the ld. CIT(A), the assessee took the ground challenging the charging of interest u/s 234B in respect of disallowance on account of 'provision for bad and doubtful debts' and disallowance on account of 'deferred tax liability' on the ground that such disallowances made under the provisions of the I.T. Act have been inserted after the filing of the income-tax return for the year under consideration from retrospective effect. The ld. CIT(A), however, did not adjudicate the issue raised by the assessee. 14. Ld counsel for the assessee referring to the decision of the Hon'ble Orissa High Court ....
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....for bad and doubtful debts was to be added to the book profit under the MAT provision. Accordingly, the Assessing Officer vide assessment order dated 28.01.2011 added Rs. 75,00,000/- on account of bad and doubtful debts to the taxable book profit u/s 115JB and levied interest u/s 234B and 234C thereon. He submitted that since the aforesaid Explanations were introduced or brought in with retrospective effect by the Finance Act, 2008 and 2009 respectively, therefore, the assessee could not be termed as defaulter in payment of advance tax and hence was not liable to pay interest in terms of section 234B and 234C of the I.T. Act. 18. Referring to the decision of the Hon'ble Bombay High Court in the case of CIT v. JSW Energy Ltd., he submitted that the Hon'ble High Court in the said decision has held that where the assessee computed book profit of assessment year 2006-07 as per prevailing law, no interest under section 234B could be levied consequent to inclusion of various items while computing book profit as per Explanation to section 115JB which has been brought on statute by Finance Act, 2008 with retrospective effect from 01.04.2001. 19. Referring to the decision of the Hon'b....
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....e Act, the total tax payable is determined u/s 115JB of the I.T. Act and the interest is charged u/s 234B, 234C and 234D. We find the assessee before the ld. CIT(A) has raised the ground challenging the levy of interest u/s 234B in respect of disallowance on account of provision for bad and doubtful debts and disallowance on account of deferred tax liability under MAT provisions which has been reproduced by the ld. CIT(A) at page 2 of the order which reads as under :- "6. That the Ld. AO erred in charging interest under section 234B of the Act. 6.1 That the Ld. AO erred in charging interest under section 234B of the Act in respect of the following disallowances made under the MAT provisions of the Act which have been inserted after filing the tax return for the year under consideration from retrospective effect. * Disallowance on account of "provision for bad and doubtful debts "; and * Disallowance on account of "deferred tax liability ". " 22. We find although a specific ground was raised by the assessee before the ld. CIT(A), however, he has not adjudicated the same. Now, the assessee before the Tribunal has raised a ground challenging the ....
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.... taking those materials into consideration and there is no need to direct remand. 24. The apex Court in Indian Bank v. K.S.Govindan Nair & Ors., [2004] 13 SCC 697, held that once the materials are available on record, it was for the High Court to have decided the matter on the basis of that materials after appreciation of evidence, and there was no need for directing remand. 25. The apex Court in Gowrammanni & Ors. v.. V.V.Patil (D) by L.Rs. & Ors., [2009] (II) OLR SC 465, held that the appellate court should have itself disposed of the case on merits taking into consideration the evidence adduced before the trial Court as on the question of identity of disputed land the parties have adduced evidence, the Court Commissioner was appointed and submitted a report, and he was examined as a witness and duly cross-examined and thereupon the suit was disposed of by the trial Court. 26. The Allahabad High Court in Mohd. Ayyub and Sons Agency's case (supra), held that the power of the Tribunal to permit any party to the appeal to raise the question of jurisdiction, which goes to the root of the matter and does not involve further investigation into facts, cannot b....
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....d 234C on account of addition of the same to the book profit u/s 115JB is improper. 26. Similarly, it is also his submission that Explanation (1)(i) to section 115JB was inserted by the Finance (No.2) Act, 2009 with retrospective effect from 01.04.2001 whereby provision for bad and doubtful debts was to be added to the book profit of the assessee under the MAT provision and, therefore, the Assessing Officer, who made addition of Rs. 75,00,000/- on account of bad and doubtful debts to the taxable book profit could not have levied interest u/s 234B and 234C thereon. 27. We find the provisions of section 208 as it stood at the relevant time read as under :- "Conditions of liability to pay advance tax. 208. Advance tax shall be payable during a financial year in every case where the amount of such tax payable by the assessee during that year, as computed in accordance with the provisions of this Chapter, is ten thousand rupees or more. 28. Now, the question that arises is as to whether there is any statutory obligation on the part of the assessee to pay advance tax during the said previous year when the Explanation 1(h) to provisions of section 115JB was inse....
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.... - Not less than fifteen per cent of such advance tax. On or before the 15th September - Not less than forty-five per cent of such advance tax, as reduced by the amount, if any, paid in the earlier instalment. On or before the 15th December - Not less than seventy-five per cent of such advance tax, as reduced by the amount or amounts, if any, paid in the earlier instalment or instalments. On or before the 15th March - The whole amount of such advance tax as reduced by the amount or amounts, if any, paid in the earlier instalment or instalments. (b) all the assessees (other than companies), who are liable to pay the same, in three instalments during each financial year and the due date of each instalment and the amount of such instalment shall be as specified in Table II below: TABLE- 2 Due date of instalment Amount payable On or before the 15th September Not less than thirty per cent of such advance tax. On or before the 15th December Not less than sixty per cent of such advance tax, as reduced by the amount, if any, paid in the earlier instalment. On or before the 15th March T....
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....e amendment from April 1, 2001, the appellant first voluntarily paid a sum of Rs. 1,55,62,511/- on account of the tax payable on book profit as provided in amended provision of Section 115 JB and then filed its revised return of March 31, 2003 declaring its business income as nil but the book profit under Section 1 15JB as Rs. 20,63,65,71 1/-. The Assessing Officer accepted such return of income but imposed interest under Section 234B and 234C of the Act amounting to Rs. 44,00,937/- and Rs. 11,78,960/- respectively. 11. In our opinion, the amended provision of Section 11 5JB having come into force with effect from April 1, 2001, the appellant cannot be held defaulter of payment of advance tax. As pointed out earlier, on the last date of the Financial Year preceding the relevant Assessment Year, as the book profit of the appellant in accordance with the then provision of law was nil, we cannot conceive of any "advance tax" which in essence is payable within the last day of the financial year preceding the relevant Assessment Year as provided in Sections 207 and 208 or within the dates indicated in Section 211 of the Act which inevitably falls within the last date of Financi....
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....ther High Courts and the Tribunals relied upon by the Tribunal did not effectively consider the question whether even in a case like the present one where on the last date of the Financial Year preceding the relevant Assessment Year, the assessee had no liability to pay advance tax, he would be nevertheless asked to pay interest in terms of Section 234B and Section 234C of the Act for default in making payment of tax in advance which was physically impossible." 30. We find the Hon'ble Bombay High Court in the case of JSW Energy Ltd. (supra) following the decision of the Hon'ble Calcutta High Court in the case of Emami Ltd.(supra) and various other decisions has upheld the decision of the Tribunal in deleting the levy of interest u/s 234B on account of the addition made by the Assessing Officer while making MAT calculation u/s 115JB on the basis of amendments made to such provisions with retrospective effect from 01.04.2001. The relevant observations of the Hon'ble High Court read as under :- "11. Then, Mr. Tejveer Singh vehemently contended that in relation to question no. 2, the findings require detailed probe by this Court. He submits that the Tribunal was not right i....
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....udgment of Hon'ble Calcutta High Court in Emami Ltd. v. CIT[2011] 337 ITR 470/200 Taxman 326/12 taxmann.com 64. 16. In paragraph 13 of the Tribunal's impugned order the relevant portion from Calcutta High Court's judgment has been extracted. The Calcutta High Court, therefore, found that the provisions would indicate that they are mandatory. There is no scope for waiving of the provision. However, in order to attract the provisions contained in section 234B and 234C of the Act, it must be established that the assessee had the liability to pay advance tax as provided under sections 207 and 208 of the I.T. Act within the time prescribed under section 211 of that Act. Noting the rival contentions, the Calcutta High Court proceeded to hold that the last date of relevant financial year was 31st March, 2001 and on that date, admittedly, the appellant before it had no liability to pay any amount of advance tax in accordance with the then law prevailing in the country. Consequently, the appellant paid no advance tax and submitted its regular returns on 31st October 2001, within the time fixed by law wherein it declared its total income and the book profit both as Nil. The amendmen....
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....r from the language of the validation clause, as quoted by us earlier, that the liability was extended not by way of clarification but by way of amendment to the Finance Act with retrospective effect. It is well established that while it is permissible for the Legislature to retrospectively legislate, such, retrospectivity is normally not permissible to create an offence retrospectively. There were clearly judgments, decrees or orders of courts and Tribunals or other authorities, which required to be neutralised by the validation clause. We can only assume that the judgments, decree or orders, etc., had, in fact, held that persons situate like the appellants were not liable as service providers. This is also clear from the Explanation to the valuation section which says that no act or acts on the part of any person shall be punishable as an offence which would not have been so punishable if the section had not come into force. 8. The liability to pay interest would only arise on default and is really in the nature of a quasi-punishment. Such liability although created retrospectively could not entail the punishment of payment of interest with retrospective effect." ....
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.... year prior to the end of the financial year on 31st March. However, in the instant case the amendments which got the assent of the President were brought into the statue book after the end of the financial year. Therefore, the assessee was not in a position to estimate its liability under the MAT provisions. Therefore, the decision relied on by the ld. DR is not applicable to the present case. In view of the above discussion, the amended ground raised by the assessee is allowed. ITA No.2183/Del/2014 (By Revenue) : 33. The ground no.1 by the Revenue reads as under :- "1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in deleting the addition of Rs. 4,09,00,000/- made on account of adjustment following TPO's order on ALP and holding that the action of the TPO in determining the ALP of Royalty paid for the Taloja Plant of the assessee at NIL was incorrect and unsustainable." 34. Facts of the case, in brief, are that the assessee during the year under consideration has entered into the following international transactions with its AE in both its automotive and float glass divisions :- International Transactions Automo....
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....and Wired glass. Hindusthan National Glass & Inds. Ltd. 10.92% Manufactures glass containers. Triveni Glass Ltd. -5.50% Manufactures float, sheet, figured and wired glass. 39. Thereafter, the TPO compared the operating margins of the Float Glass division of the assessee with the mean of the operating margins of these comparables. Upon comparison, the TPO concluded that the higher mean operating margin of these comparables vis-à-vis that of the assessee indicated that the assessee has not derived commensurate benefit from the payments made by it on account of royalty. On the basis of the above, the TPO determined the arm's length price for the payment of royalty as NIL under CUP and, accordingly, proceeded with an upward adjustment of Rs. 4.09 crores to the income of the assessee on account of the international transactions in the Float Glass division. The Assessing Officer, thereafter, in the assessment order made addition of Rs. 4.09 crores to the total income of the assessee. 40. Before the ld. CIT(A), the assessee submitted that it has paid on amount of Rs. 3.62 crores as royalty for technical know-how in the Automotive Glass division and Rs. 4.09 ....
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....The following details were furnished before the ld. CIT(A) :- Turnover of Asahi India over the years Company Name Sales (in Rs. Lakhs) Mar-05 Mar-06 Mar-07 Mar-08 Asahi India Glass Ltd. 67,606 68,283 87,830 111,382 Y.o.Y. growth in sales 1% 29% 27% 41. Various submissions were made to challenge the action of the TPO. The assessee further submitted fresh comparable uncontrolled price for the payment of royalty and connected agreements which were forwarded to the TPO for a remand report. The TPO in his report objected to the admission of the additional evidences filed before the ld. CIT(A) and justified its earlier action. The ld. CIT(A) confronted to the assessee to the remand report made by the Assessing Officer. After considering the contents of the remand report and the rejoinder of the assessee to such remand report, the ld. CIT(A) directed the TPO to delete the addition of Rs. 4.09 crores on account of TP adjustment in respect of royalty by observing as under :- "10.4 I have carefully considered the submissions of the appellant and also the remand report dated 01/01/2013. In the TP study the royalty....
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....use of end use of float glass results in bulk rejection of orders and loss of customer base. The licensed technology ensures lower defects, increased aesthetics and enhanced product perception. Furthermore, float glass is often treated with colorants and chemical coatings for specialty applications. The appellant has argued that the direct benefit to the appellant from the licensed technology has been the increase in the sales over the years with its ability to cater to the changing needs of its customer which can be seen from the table below: Turnover of Asahi India over the years Company Name Sales (in Rs. Lakhs) Mar-05 Mar-06 Mar-07 Mar-08 Asahi India Glass Ltd. 67,606 68,283 87,830 111,382 Y.o.Y growth in sales 1% 29% 27% 10.6 The appellant has further submitted that approximately 80% of the sales revenue of the appellant represents sales made to global customers of the Asahi Group and these sales would not have been possible in absence of the technical and brand affiliation with the Asahi Group. The appellant has also argued that the majority of the benefit derived by the appellant includes retention ....
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....f the ld. CIT(A) in granting relief to the assessee. Referring to para 10.4 of the order of the ld. CIT(A), he submitted that he has not properly adjudicated issue and, therefore, the order of the ld. CIT(A) should be reversed and that of the Assessing Officer be restored. 44. Ld. counsel of the assessee on the other hand heavily relied on the order of the ld. CIT(A). He submitted that the ld. CIT(A) has given justifiable reasons while deleting the addition made by the Assessing Officer. He submitted that the assessee company in the instant case has paid royalty of Rs. 4.09 crores on net sales of float glass of Rs. 238.61 crores to its AEs which works out to only 1.71% of sales. Therefore, the same deserves to be allowed because due to the licensed technology made available by the AEs, the assessee company was able to cater to the changing needs of its customers, maintain quality and was also able to increase its sales over the years and smooth functioning of its business. He submitted that since the assessee company does not undertake any research and development activity on its own and totally depends upon its AEs for technology, therefore, without such technology the assessee....
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....visions of section 92CA of the I.T. Act by comparing the operating margin of the Float Glass Division of the assessee company with the mean/average operating margin of three comparable companies namely Gujarat Guardian Ltd., Hindustan National Glass and Industries and Saint Gobain Glass India Ltd.. However, the TPO excluded two companies namely Bharat Glass Tube Ltd. and Triveni Glass Ltd. as comparables. On appeal by the assessee, the Tribunal vide order 06.04.2016 directed the TPO to include Bharat Glass Tube Ltd. and Triveni Glass Ltd. as comparables. Consequently, pursuant to the order of the Tribunal, the TPO worked out the average/mean operating margin by including Bharat Glass Tube Ltd. and Triveni Glass Ltd. as comparables. Therefore, Bharat Glass Tube Ltd. and Triveni Glass Ltd. ought to be considered as comparables for the year under consideration for working out the average/mean operating margin of Float Glass Division. He submitted that Gujarat Guardian Ltd. and Sejal Architectural Glass Ltd. could not be considered as comparable because Gujarat Guardian Ltd. was engaged in the manufacture of float glass and mirror glass and Sejal Architectural Glass Ltd. was engaged in....
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.... Sejal Archtiectural Glass Ltd. 43.87 39.04 4.83 11.01% (6) Triveni Glass Ltd. 106.23 112.07 -5.84 -5.50% Mean/Average 8.66% 47. The operating margin of the assessee company for float glass division was shown at 6.02% which the TPO has reproduced at page 4 of his order. We find the TPO in the order rejected three comparables namely Bharat Glass Tubes Ltd., Hindustan National Glass & Inds. Ltd. and Triveni Glass Ltd. as comparables and worked out the average/mean operating margin of three comparables at 15.99%. After comparing the operating margin of the float glass division of the assessee company at 6.02%, the TPO made addition of Rs. 4.09 crores on the ground that the assessee company had not derived any benefit from payment of royalty and determined the arm's length price of royalty at Nil under CUP. We find ld. CIT(A) deleted the addition which has been already been reproduced in the preceding paragraph. We do not find any infirmity in the order of the ld. CIT(A) on this issue. We find the assessee company has paid royalty of 4.09 crores on net sales of float glass of Rs. 238.61 crores to its AEs which works out ....
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.... of the assessee as to how it should conduct its business and regarding the necessity or otherwise of incurring the expenditure in the interest of its business. It is entirely the choice of the assessee as to from whom it contemplates to source its technology or technical knowhow and as to what steps should be taken to meet the competition prevalent in the market and to stave off the competitors. This is the domain of the businessman and the TPO has no say in the matter. The Revenue cannot justifiably claim to place itself in the arm chair of businessman or in the position of the Board of Directors and assume the role to decide how much is the reasonable expenditure having regard to the circumstances of the case. In view of the above discussion and in view of the detailed reasoning giving by the ld. CIT(A) while deleting the disallowance made by the Assessing Officer. We find no infirmity in the same. Accordingly, the order of the ld. CIT(A) is upheld and the ground raised by the Revenue is dismissed. 49. Ground no.2 by the Revenue reads as under :- "2. In deleting the addition amounting to Rs. 40,36,786/- made on account of provision for gratuity to book profit as per ....
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....ppellant has also relied on various case laws. In the case of DCIT Vs. Inox Leisure (supra) the Hon'ble High Court of Gujarat has held "Considering the above judicial pronouncements and the facts on hand, we have no hesitation in upholding the Tribunal's view that though actual payment of gratuity may be made at a later point of time upon periodical release of the employees from service, it is provision having been made on actuarial basis it cannot be stated to be an uncertained liability so as to add it back in terms of Clause (c) to Explanation 1 to section 115JB." Respectfully following the decision of the Hon'ble High Court of Gujarat in the case of DCIT Vs. Inox Leisure (supra), the assessing officer is directed to exclude the provision for gratuity amounting to Rs. 40,36,786/- while computing book profit u/s 115JB. This ground of appeal is allowed." 51. Aggrieved with such order of the ld. CIT(A), the Revenue is in appeal before the Tribunal. 52. After hearing both the sides, we do not find any infirmity in the order of the ld. CIT(A). It is an admitted fact that the provision for such gratuity was made on the basis of actuarial valuation which even has been accepted by....