TaxTMI 
TaxTMI 
2017 (2) TMI 1389
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....ii) Rs. 29593000/- (iii) Disallowance of Severance Cost Rs. 3510000/- (iv) Disallowance u/s 40(a)(ia) Rs. 770973/- (v) Income Tax Debited to the P/L Account Rs. 223935/- (vi) Disallowance out of Staff Welfare Expenses Rs. 130000/- (vii) Depreciation on Computer Accessories Rs. 58986/- 3. The assessee preferred an appeal before ld. CIT(A) against the aforementioned addition and the Tribunal vide its order dated 18th March, 2011 in ITA No. 3717/DEL/2010 restored the matter to the file of the AO/DRP on issues of Arm's Length Price, disallowance under Section 36(1)(ii) and severance cost. Accordingly, learned DRP vide its order dated 4th March, 2013 decided the matter. After considering the directions of learned DRP, the TPO vide his order dated 8th February, 2013 recalculated the income of assessee to be enhanced by Rs. 4,17,67,171/-. As regards the other two issues of addition of Rs. 35,10,000/- on account of severance cost and disallowance under Section 36(1)(ii) amounting to Rs. 2,95,93,000/-, learned DRP upheld the addition made by AO. Accordingly, Assessing Officer determined the revised income of Rs. 12,77,03,384/-....
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....rsed by its associated enterprises (payments made by the appellant on behalf of its associated enterprises which were subsequently reimbursed by the associated enterprises) as part of operating expenses and the corresponding reimbursement as part of operating revenue of the appellant while determining ALP. 9. The Ld. AO/TPO/DRP have erred in not allowing the benefit of + 5% as provided by proviso to section 92C(2) of the Act. 10. The Ld. AO/DRP have erred in disallowing the bonus amounting to Rs. 29,593,000 paid by the appellant to its employees (who are also shareholders of the appellant) u/s 36(l)(ii) of the Act by holding that the same would have been payable by way of dividend. The Ld. AO has ignored the fact that the ratio of bonus paid by the appellant is different from the ratio of the shareholding of the shareholders employee and thus, bonus paid cannot be disallowed u/s 36(l)(ii) of the Act. 11. The Ld. AO/DRP have erred in disallowing the severance cost amounting to Rs. 3,510,000 paid by the appellant to an employee at the time of severance. The Ld. AO erred in holding that there is no justification of paying such amount as severance ignoring th....
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.... TPO before the Hon'ble Tribunal. The comparables with high margins have invariably been assailed by the assessees on the ground of functional dis-similarity, etc. However, it is also seen that the comparables (included by assessee) having low margins also suffer from functional dis-similairty or other characteristics as found in comparables with high margin. In the past in other cases (e.g. M/s Avenue Asia Ltd. ITA No.6638/DEL-2013) Hon'ble Tribunal, during the course of hearing stated that Department cannot challenge the comparables accepted by the TPO when the Revenue is not in appeal. The judgement in this case was passed in January, 2016. Therefore, it was realized that Revenue would have to file a cross objection to seek justice. In view of this, it was decided that on such issues department needs to file objection. In view of this appeal has been filed late. In view of the above facts and circumstances it is, therefore, humbly requested to your honour kindly condone the delay in filing the appeal late. Kindly acknowledge receipt, Yours faithfully, Sd/- Dy. Commissioner of Income Tax Circle-6(l), New Delhi....
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....anies having low profit rate should also be eliminated due to their functional dissimilarities. He tried to accentuate on the functional dissimilarities of the remaining four companies. ITA No.1585/Del/2015 16 11. In this regard, the primary question which falls for our consideration is: 'Can the DR argue for the exclusion of some companies, which were treated by the AO/TPO as comparable'? In our considered opinion, the answer to this question can be given in negative alone. It is understandable that when CIT(A) has decided some point in favour of the assessee and against the Revenue, the AO is fully empowered to assail the correctness of such a decision in an appeal before the tribunal. Similarly, when an assessment order is passed u/s 143(3) read with section 144C of the Act, the AO can be aggrieved against the direction given by the DRP. In such cases of grudge, the AO can approach the tribunal for an appropriate relief, wherever and to the extent the law permits. The underlying idea behind these situations is that the AO is dissatisfied with reversal of his view either by the CIT(A) or the DRP, as the case may be, which he wants to be restored. But, the AO in our consid....
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....es as comparable in the transfer pricing analysis, which are in fact not comparable. At this stage, it is relevant to mention that the institution of the DRP came into being by means of insertion of section 144C by the Finance (No. 2) Act, 2009 w.r.e.f. 1.4.2009. As per this ITA No.1585/Del/2015 19 section, an assessee who is dissatisfied with a draft order can approach the DRP for necessary relief. Such a relief can be allowed by giving direction under sub-section (5) of this section. Sub-section (13) of section 144C provides that the AO is obliged to pass a final assessment order in conformity with the direction given by the DRP. This shows that the direction tendered by the DRP is binding on the AO notwithstanding the AO's reservations on it. The Finance Act, 2012 inserted sub-section (2A) to section 253 w.e.f. 1.7.2012 providing that : 'The Principal Commissioner or Commissioner may, if he objects to any direction issued by the Dispute Resolution Panel under sub-section (5) of section 144C in respect of any objection filed on or after the 1st day of July, 2012, by the assessee under sub-section (2) of section 144C in pursuance of which the Assessing Officer has passed a....
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....nce Act, 2012 to sub-sections (2A) and (4) of section 253, the Department has acquired a right to file appeal or cross objection against the assessment order passed in pursuance of the direction of the DRP to the extent it is aggrieved against such direction. It has no right to file appeal or cross objection against the voluntary decision of the AO/TPO ITA No.1585/Del/2015 22 which was not subject matter of any adverse direction by the DRP. The analogy which follows is that if no appellate recourse is open to the Department against the suo motu order of the AO/TPO, then, the DR, who argues before the tribunal for and on behalf of the AO, can equally have no right to argue against that part of the order. We want to clarify that the Department is fully empowered to set such adverse position right by taking recourse to the other remedies, if any, available as per law de hors the appellate option. 16. The ld. DR then argued that there can be no estoppel against the Act and hence no shadow can be cast on his right to argue against the inclusion of four companies which are not comparable. We appreciate the concern of the ld. DR and find force in his contention that there can be no estopp....
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....nable as per law. Section 253(1) of the Act deals with the filing of appeals by the assessee before the Tribunal against the orders specified therein. Sub-section (2) of section 253 empowers the Revenue to file appeal before the Tribunal. This section provides that the C1T may, if he objects to any order passed by the CIT(A) u/s 154 or 250, direct the Assessing Officer to appeal to the Appellate Tribunal against the order. This section does not embrace cases where the first appeal lies to the Tribunal against the order passed by the Assessing Officer u/s I44C( 13) pursuant to the direction given by the Dispute Resolution Pane! (DRP) u/s 144C(5) of the Act. This is in a sharp contrast to the specific entitlement of the assessee under clause (d) of section 253(1) to appeal against the order passed by the Assessing Officer in pursuance of the directions of the DRP. The reason appears to be that \\hen the DRP has scrutinized the draft order of the Assessing Officer and given the appropriate direction to modify it. if necessary, then there is no logic in empowering the C1T to rescrutinize such order of the Assessing Officer and have any grievance against the same. It is more so because ....
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....ainst the draft assessment order before the DRP on 30.01.2012. Since the objection in this case was filed by the assessee before the DRP prior to 01.07.12. the Revenue could have neither filed appeal nor cross-objection against the order of the Assessing Officer. We. therefore, hold that the cross-objection filed by the Revenue is not maintainable as per law. 11. The second reason for which the CO of the Revenue deserves the fate of dismissal is the language of section 253 of the Act which permits the CIT to authorize the Assessing Officer to file appeal u/s sub-section (2A) 'if he objects to any direction issued by the Dispute Resolution Panel under sub-section (5) of section 144C. In the like manner, cross-objection can be filed under sub-section (4) of section 253 of the Act which provides that: 'the Assessing Officer .... on receipt of notice that an appeal against the order of... the Assessing Officer in pursuance of the directions of the Dispute Resolution Panel has been preferred under sub-section (1) .... he may ... file a memorandum of cross-objections... against any part of the order of the Assessing Officer (in pursuance of the directions of the Dispute Resolu....
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.... that additional ground can be raised at appellate stage relying on the decision in the case of Amines Plasticizers Ltd. v. CIT [1997] 223 ITR 173 (Gau.). 13. Learned CIT(DR) further submitted that appellate authority is required to set right the wrongful actions of lower authorities. In this regard, he relied on the decision in Kapurchand Shrimal v. CIT [1981] 131 ITR 451/7 Taxman 6 (SC) and also on the decision of Hon'ble High Court of Delhi in the case of CIT v. Jansampark Advertising & Marketing (P.) Ltd. [2015] 375 ITR 373/231 Taxman 384/56 taxmann.com 286. 14. Learned CIT(DR) referred to page 66 to 68 wherein the TPO's order is contained and referred to page 73 of the paper book to point out that learned TPO accepted certain comparables though they were functionally not comparable. He submitted that same principle is to be applied for all comparables whether earning high profit or low profit. Learned counsel in the rejoinder relied on the decision of Hon'ble Supreme Court in the case of MCorp Global (P.) Ltd. v. CIT [2009] 178 Taxman 347/309 ITR 434 wherein, it has been held that benefit once granted to Assessee cannot be taken back. Learned DR referred to t....
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....rt is satisfied that the case involves a substantial question of law. (2) The Chief Commissioner or the Commissioner or an assessee aggrieved by any order passed by the Appellate Tribunal may file an appeal to the High Court and such appeal under this sub-section shall be- (a) filed within one hundred and twenty days from the date on which the order appealed against is received by the assessee or the Chief Commissioner or Commissioner; (b) (c) in the form of a memorandum of appeal precisely stating therein the substantial question of law involved, (2A) The High Court may admit an appeal after the expiry of the period of one hundred and twenty days referred to in clause (a) of sub-section (2), if it is satisfied that there was sufficient cause for not filing the same within that period. (3) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question. The appeal shall be heard only on the question so formulated, and the respondents shall, at the hearing of the appeal, be allowed to argue that the case does not involve such question: Provided that nothing i....
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....t; it provides power to interfere with the Appellate Tribunal's order; be it on an issue which has. been decided by it-erroneously or on an issue not decided by it. In this case, it may be true that the appellant has not raised this question before the Appellate Authority and also before the Appellate Tribunal. The appellant has not produced the memorandum of the appeal before the Tribunal and the order of the Appellate Tribunal also does: not bear it out that the appellant has raised this question, but we would think that the question which is raised essentially, appears to be a pure question of law and it is substantial in the sense that it has got a direct and substantial impact on the destiny of the appellant's case and we hence proceed to formulate the following substantial question of law:- Whether in the circumstances of the case, the Appellate Authority and the Tribunal should have found that the amount of interest received on the refund by the Income Tax Department should be included in the amount on which the appellant was taxed under Section 44BB of the Act?" Whether in the circumstances of the case, the Appellate Authority and the Tribunal should have found t....
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.... granted to the assessee by the Assessing Officer. The Tribunal has no power to enhance the assessment. Applying the ratio of the said judgment to the present case, we are of the view that, in this case, the Assessing Officer had granted depreciation in respect of 42,000 bottles out of the total number of bottles (5,46,000), by reason of the impugned judgment. That benefit is sought to be taken away by the Department, which is not permissible in law. This is the infirmity in the impugned judgment of the High Court and the Tribunal." 18. Learned CIT (DR) referred to the decision of Hon'ble Bombay High Court in the case of Ashok Vardhan Birla (supra). In this case, it was, inter alia, held that while deciding a tax appeal, the appellate authorities viz. the Appellate Assistant Commissioner as also the Tribunal have jurisdiction to permit additional grounds to be raised before them even though these grounds may not have been raised before either the Assessing Officer or the Appellate Assistant Commissioner, so long as the points for decision arise from the proceedings which were the subject matter of assessment before the Assessing Authority. It was further held that additional....
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....ll errors in proceedings under appeal but did not empower the appellate authority to withdraw the benefits granted by assessing authority. 19. Similarly, in the case Jansanpark Advertising & Marketing (P.) Ltd., (supra) also the observations were made with the reference to powers of appellate authorities, which were as follows: '38. The provision of appeal, before the CIT (Appeals) and then before the ITAT, is made more as a check on the abuse of power and authority by the AO. Whilst it is true that it is the obligation of the AO to conduct proper scrutiny of the material, given the fact that the two appellate authorities above are also forums for fact-finding, in the event of AO failing to discharge his functions properly, the obligation to conduct proper inquiry on IT A No. 525/2014 Page 21 of 24 facts would naturally shift to the door of the said appellate authority. For such purposes, we only need to point out one step in the procedure in appeal as prescribed in Section 250 of the Income Tax Act wherein, besides it being obligatory for the right of hearing to be afforded not only to the assessee but also the AO, the first appellate authority is given the liberty....
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....dgment of AO unless appeal is pending before it impugning such findings. Therefore, Tribunal cannot enter into the realm of findings of DRP with which assessee is not aggrieved unless Department has right to appeal against such findings. This decision also is of no assistance to the department because in the present case, the learned TPO has also arrived at certain comparables after duly examining the facts. These comparables, impugned by learned CIT(DR), are not the subject matter of appeal before the Tribunal. The submission of learned CIT(DR) relying on B.J. Services Co. (supra) that the appellate authority should set right all the actions of lower authorities are acceptable to the extent of the subject matter of appeal. Though, the submission of learned CIT (DR) that the subject matter appeal is determination of arm's length price, no doubt is convincing, but at the same it has to be kept in mind that determination of Arm's Length Price of international transactions involves several steps and, on those steps, which are not disputed by the assessee, the department cannot be heard unless specific provision is there for entering into that realm. We are of the considered op....
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....d enterprises noted above to assist them in providing services to the Investment funds. CCIAPL primarily carries out research and scouting activities for ChrysCapital Management Companies to identify entrepreneurs and portfolio companies requiring assistance in the form of capital infusion, strategic direction and financial advice. ChrysCapital Management Companies are asset management companies for investment funds (Private Equity Funds) who generally focus on investment in incubation ventures. These investment funds concentrate on providing funds to entrepreneurs engaged in the business of providing software services, outsourcing services and technology out of India. 27. The assessee had undertaken the following international transactions:- S. No Description Amount (Rs.) 1. Advisory Services 25,20,11,250 2. Reimbursement of expenses incurred on behalf of AE's 5,39,53,094 3. Receipt of advance for services to be rendered in future 3,33,41,250 28. There was no adjustment made in regard to the reimbursement of expenses and receipt of advance for services to be rendered in future. As regards, the advisory services, the assessee ....
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.... Yes No 11. Khandwala Securities Ltd Yes 12. SREI Capital Markets Ltd Yes 13. Integrated Enterprises India Ltd Yes 31. After considering the aforementioned table, the learned TPO show caused the assessee as to why the comparables used by the assessee in earlier year should not be used in the current year also. 32. After considering the assessee's submissions, the final list of comparables, adopted by learned TPO, was as under:- S. No Company name 2006 1. Khandwala Securities Ltd Current Year 43.35 2. Keynote Corporate Services Ltd Current Year 94.06 3. Sumedha Fiscal Services Ltd Current Year -16.71 4. KJMC Global Market (India) Ltd Current Year -10.42 5. Brescon Corporate Advisors Ltd Preceding Year 87.89 6. ICDS Preceding Year 119.00 Arithmetic Mean 52.86 33. After considering the assessee's submissions as regards the working capital adjustments and, after, re-computing the operating profit of the assessee at 19.08%, computed the adjustme....
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....jecting a comparable. If the functional profit of a comparable vis-à-vis the tested party remains the same over the years then there is no reason as to why the decision rendered in regard to one assessment year may not be applied for any other year unless it is demonstrated with facts and figures that the said decision was rendered in entirely different set of facts. In the present case, the assessee has referred to para 10 of Xander Advisors India (P.) Ltd. (supra), which is as follows:- "We have perused the Annual accounts of this company, a copy of which has been placed on/record. This company is engaged in carrying on merchant banking and investment activities along with providing project advisory services. A look at the Annual accounts of Brescon Corporate Advisors Ltd. indicates that it has two streams of income, namely, Tee based financial services' and 'Other income1. Details of the revenue under 'Fee based financial services' is given at page 324 of the paper book, which is as under: - Financial Restructuring & Recapitalisation Rs. 10,00 crore Syndication of Debt Rs. 2.18 crore Equity Related Advisory/M&A Advisory Rs. 2.03 ....
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.... of the advisory services by this company is available, which component is very small vis- a-vis the entity level operations. Availability of separate data of this segment could have possibly made it comparable with the assessee. This company is, therefore, directed to be excluded from the list of comparables." 36. Learned counsel referred to the annual report of Brescon Corporate Advisors Limited for assessment year 2006-07 wherein Schedule 9 dealing with 'fee based financial services' reads as under: 'Schedule-9 "FEE BASED FINANCIAL SERVICES" Financial Restructuring & Recapitalisation 68,049,356 72,067,663 Syndication of Debt 29,881,668 10,356,217 Equity Related Advisory 25,253,608 23,180,884 Due diligence advisory to advisory to Arcil/M&A Advisory 16,378,720 139,563,352 105,604,764' 37. From the above it is evident that there is no change in functional profile of Brescon in assessment year 2006-07 as computed to assessment year 2005-06 except that in the assessment year 2006-07 due diligence advisory to advisory to Arcil/M&A advisory fees was also there. Therefore, there is no cha....
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....ly Sri. Ashish Dhawan and Sri. Kunal Shroff at Rs. 1,89,75,000/- and 1,06,18,000/- who are also major shareholders in the company with 50% shareholding of each. Assessing Officer observed that as per the provision of section 36(I)(ii) bonus and/or commission paid to an employee is allowable as deduction, if and only if, it is not payable as profit or dividend. Assessing Officer pointed out that in the case of assessee company, profit of Rs. 5,06,14,970/- had been declared, however, no dividend had been proposed or distributed among the shareholders which also included the directors of the company. Thus, he concluded that in case of directors of the company, the sum paid as commission and bonus could have been paid as profit or dividend which is not the case here. After considering the assessee's detailed reply he made an addition of Rs. 2,95,93,000/-. At the time of hearing, ld. counsel pointed out that this issue is covered in favour of assessee by the decision of Hon'ble Delhi High Court in assessee's own case for the assessment year 2008-09. Having heard both the parties, we find that Hon'ble Delhi High Court in Chryscapital Investment Advisors (India) (P.) Ltd. ....
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....ssessee paid a severance cost of Rs. 3510000/- to Mr. Girish Baliga at the time of his leaving the job in November, 2005. Mr. Girish Baliga is a qualified Chartered Accountant and holds a Bachelor of Art from Bombay University. Mr. Girish Baliga has the experience of working with JP Morgan and Whitefield Capital Investment Advisors prior to working the assessee. It will be appreciated that Mr. Baliga was neither a shareholder nor a director of the assessee and did not have any other beneficial interest in the assessee. Thus, the payment made by the assessee to Mr. Baliga was exclusively on account of the services rendered by him to the co. was based on business exigencies keeping in mind the best practices being followed in the industry. It is evident from the above facts that the above regular expenditure is incurred by the assessee for the purpose of carrying out its business." 44. The assessee had also in his submission relied on the decision of Hon'ble Madras High Court in the case of CIT v. Gobald Motor Service (P.) Ltd. [1975] 100 ITR 240, wherein, it was, inter alia, held that it was not for the revenue to question the commercial expediency of the expenditure. Commerc....