TaxTMI 
TaxTMI 
2018 (9) TMI 1938
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.... "Whether on the facts and in the circumstances of the case, the assessing officer erred in enhancing the income by way of adjustments towards Arm Length price when the income of the appellant is eligible for exemption u/s 10A of the Act?" (b) Additional ground filed vide petition dated 30.07.2018 "On the facts and in the circumstances of the case, whether the assessing officer erred in not granting exemption u/s 10A in respect of business profits enhanced on account of additions of Rs. 10,00,000 and Rs. 2,04,215/- made towards disallowance of professional charges and foreign travel expenses." 3. During the appeal hearing, the Ld.AR has withdrawn the additional ground filed vide petition dated 17.07.2018 relating to the claim of exemption u/s 10A of the Income Tax Act (hereinafter called as 'Act') on account of enhancement of income by way of adjustment of Arm Length Price (ALP). Therefore, additional ground No.1 relating to the exemption u/s 10A on enhanced income by way of adjustments(ALP) is dismissed as withdrawn. 4. The first issue in appeal No.ITA/67 for the assessment year 2011-12 is the disallowance of sum of Rs. 10,00,000/- u/s 40(a)(ia) of the Act towards pro....
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....15/- towards unverifiable expenses in the draft assessment order. The assessee has not filed any objection before the DRP against the draft assessment order. Therefore, the AO disallowed the foreign travel expenses of Rs. 2,04,215/- representing 1/10 of the expenditure debited under the head 'foreign travel expenses' to the Profit & Loss Account. 8. Against the order of the AO, the assessee filed appeal before this Tribunal. 9. During the appeal hearing, the Ld.AR did not place any evidence to controvert the finding of the AO and to establish the relevance and genuineness of the expenditure with foreign visits made by the Director and the purpose and nature of expenses. Therefore, we do not find any reason to interfere with the order of the Ld.AO. The disallowance made by the AO is upheld and the appeal of the assessee on this ground is dismissed. 7. Ground No.4 is related to the ALP adjustment towards interest on advances given by the assessee to its Associate Enterprise (AE) amounting to Rs. 1,38,12,847/-. During the assessment proceedings, the AO found that the assessee had entered in to an international transaction, hence the case was referred to TPO for determining the A....
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....tra group loans would be that the interest rate which would have been charged independently by independent parties in similar circumstances during the same period of time. Accordingly, the AO held that the prevalent PLR during the 2010-11 was 12.25% and charged the interest on outstanding balances as per the dates of remittances on 22,74,09,157/- which worked out to Rs. 1,99,06,753/- and proposed for adjustment u/s 92CA of the Act. The AO issued draft assessment order u/s 144C(1) dated 18.03.2015 proposing to make the adjustment of Rs. 1,99,06,753/- as suggested by the TPO. 8. Against the draft assessment order, the assessee filed objections before the DRP and submitted that the advances given to the AE is in the interest of business and further submitted that the advances were given out of interest free funds of the company, therefore, charging of interest is unjustified. Alternatively, the assessee submitted that the AO had charged the interest @ 12.25 against LIBOR plus 2%.The Ld.DRP considered the submissions made by the assessee and observed that in view of clause (C ) of explanation to section 92B of the Act, which was inserted with retrospective effect from 01.04.2004, spe....
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....e file of the AO for considering the purpose of advance with a direction of not to charge the interest on trade advance and in case of loan, to charge the interest @ LIBOR plus percentage as directed by the Tribunal in the case of GSS Infotech Ltd. Vs. ACIT in ITA No.497/Hyd/2015. The LdAR argued that, since the account copy of Greatwaters Inc, in respect of Patient Point project(PPK) establishes that the advances were the trade advances, the case law of Cura Technologies supra is squarely applicable in the assessee's case and there is no justification to charge the interest on advances. Alternatively argued that in case the submission of the assessee that no interest is chargeable is not accepted, without prejudice to his submission not to charge the interest, the Ld.AR considered for charging the interest @ LIBOR plus 2%. 10. On the other hand, the Ld.DR supported the order of the Ld.DRP/AO and argued that with insertion of Clause 'C' to Explanation to Section 92B of the Act, deferred payments, receivables and the advances given to the AE held to be international transactions and required to charge the interest. 11. We have heard both the parties and perused the material plac....
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....e Ld.DRP there would be substantive reduction in the interest cost and potential increase in the profit of the company. Therefore, the case law relied upon by the ITAT Bangalore in the case of Logix Micro System Ltd. is squarely applicable in the assessee's case. Even in the case law relied upon by the assessee in the case of Cura Logistics (supra) also, the Coordinate Bench held that if the purpose of advance is trade advance, the interest is not chargeable but in case of loan the interest is chargeable. Having observed that the advance is not a trade advance, we hold that the interest is chargeable on the advances given to the AE. 11.1. The next issue of the Ld.AR is that the advance was given out of interest free funds. In an international transaction, it is to be seen the financial impact of the transaction and the potential benefit or loss to the tax payer company. The assessee has incurred huge financial cost including the interest on working capital. As rightly observed by the Ld.DRP, had the assessee did not divert the funds, the tax payer would have saved the interest to the extent of diversion of funds. Therefore, the arguments of the Ld.AR not to charge the interest on....
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....tment towards interest on receivables. The TPO observed that the assessee had outstanding receivables of Rs. 6,83,55,290/- for the assessment year 2011- 12. Since the receivables were not received in due time, the AO held that interest is required to be charged u/s 92B of the income tax act. The assessee objected for the proposal of charging the interest, stating that the receivables are received as per the terms of sale agreement and no interest is chargeable and there was no delay. However, the AO relied on the decision of Logix Micro Systems Private Ltd. (supra) and accordingly charged the interest on receivables and proposed for adjustment u/s 92CA of the Act for an amount of Rs. 83,73,523/- for the assessment year 2011-12 and Rs. 3,28,06,636/- . The AO issued draft assessment order and the assessee filed objection before the DRP, Bengaluru and raised objection for the proposed adjustment. The DRP Bengaluru held that after insertion of Clause (c) of Explanation to section 92B of the Act, deferred payments or receivables during the course of business are international transactions. The DRP further observed that even otherwise, the moment normal credit period expires, the receiva....
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....er of the ITAT in para No.23.1 in page Nos.22 and 23 which reads as under : "23.1 In the case of LancoInfratech Ltd. Vs. DCIT (supra), the coordinate bench has held as under: "9. We have considered the rival contentions. It is well accepted practice that the construction industry pay advances at a certain percentage of the contract value to mobilise various resources for the execution of contract and these advances are given in the regular course of business. As seen from the facts of assessee's case, assessee is undertaking an EPC contract and has received mobilization advances as part of that. Like-wise, assessee has given some works to other parties on subcontract basis and necessarily it has to provide mobilization advances to the parties. It is also noticed that assessee has advanced mobilization advances to both AEs and non -AEs arid no interest has been charged from either party. Not only that assessee is also not required to pay any interest on the mobilization advances received, which are in fact more than the amounts advanced by assessee. Thus, there is complete uniformity in the act of assessee' in not charging interest from both AE and non-AE; and also not....
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....levied and allow the ground of assessee." 15.1. The Ld.AR also invited our attention to the order of this Tribunal in ITAT Vizag Bench in the case of GVK Power & Infrastructure Ltd. Vs. ACIT, Circle-2(1) in ITA No.530/Viz/2017 for the assessment year 2013-14 dated 18.05.2018, wherein, the Coordinate Bench allowed the appeal of the assessee on disallowance of notional interest relying on the decision of Hon'ble Delhi High Court in the case of Pr.CIT Vs. B.C.Management Services Ltd. (2018) 164 DTR (Del) 299. 16. On the other hand, the Ld.DR relied on the orders of the lower authorities. 17. We have heard both the parties and perused the material placed on record. In this case, there were receivables outstanding for both the assessment years which was not received in time. It was also observed that the receivables were not received during the entire year. The Ld.TPO has not furnished the delay in recovery of receivables and period of outstanding. As per the order of the TPO, the PLI margin in the assessee's case is 37.26% which is higher than the average margin of comparable case. The interest on receivables is bench marked to equate the PLI of the tax payer company with that of....
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....overing sales dues was 57 days in the case of A.Es, whereas, in the case of non-A.E. it was 66 days. It was also explained that non-charging of interest from A.Es. as well as non-A.E. on interest receivables was that it being pre-dominantly involved in the provision of services to it's A.Es. as well as third parties. The contention of the assessee have not been disputed by the authorities below. It may also be noted here that all international transactions were accepted by the TPO to be at arm's length, except, payment of interest on loan. The authorities below have treated the delayed payment beyond 30 days as loans. In fact, no loan have been extended by the assessee. It was the amount 'due' against the A.Es. as well as non-A.E. on which interest have been charged by considering the deemed loans. Therefore, the decision of ITAT, Delhi Bench in the case of M/s. Kusum Healthcare Pvt. Ltd., (supra), squarely apply in the case of the assessee, since the assessee earned significantly higher margin than the comparable companies, which have been accepted by the TPO, therefore, there was no justification to charge interest on outstandings. The decision of Hon'ble jurisdic....
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.... part of the income and made the subject matter of the adjustments. While rendering the judgement the Hon'ble High court has considered the decision in the case of Bechtel India (P) ltd. Therefore, placing reliance on the decision of MothersonSumiJnfotech& Designs Limited Vs. DCIT (supra) and the decision in the case of B.C.Managemerit services (P) Ltd we hold that the revenue has not made out case of disallowance of notional interest on delayed payments and accordingly, we set aside the orders of the authorities below and delete the addition. The appeal of the assessee on this ground is allowed. 17.1. In the instant case the PLI is higher than comparable cases and the TPO held that no ALP adjustment is required with regard to profit margin. The assessee contended that having accepted that the PLI is higher than the comparable cases the potential loss of interest is taken care and embedded in the sale price.The department has not given the specific details such as what was the period of recovery, what was the delay, what was the reasonable delay etc.,thus the department has not made out a case for charging the interest on dealy. The revenue also did not controvert the subm....
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....) r.w.s. 2(24)(x) of the Act but not granted exemption u/s 10A of the Act on the enhanced profits. The assessee raised the additional ground during the appeal hearing to grant exemption u/s 10A on the enhanced profits. The Ld.AR argued that due to inadvertence, the said ground was not raised in the appeal filed along with Form 36. Since the issue is purely legal and the facts are available on record, the additional ground raised by the assessee vide petition dated 30.07.2018 is admitted. 21. The Ld.AR during the appeal hearing argued that as per section 10A, the assessee is entitled for reduction of 100% profits as computed as per the Act. The Ld.AR argued that there was no restriction to grant exemption u/s 10A like the additions made on ALP adjustments in international transaction, wherein specific restriction was placed as per proviso to section 92C of the Act. The Ld.AR relied on the decision of Hon'ble Bombay High Court in the case of Gem Plus Jewellery India Ltd., 330 ITR 0175 and argued that the assessee is entitled for exemption u/s 10A on enhanced profits due to additions made by the AO on domestic transactions. 22. On the other hand, the Ld.DR supported the orders of ....
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....12 of the order which reads as under : "12. By reason of the judgment of the Supreme Court in CIT vs. Alom Extrusions Ltd. (2009) 227 CUR (SC) 417 (2009) 32 (Sc) DTR 4 (2009) 319 ITR 306 (Sc) the employers contribution was liable to be allowed, since It was deposited by the due date for the filing of the return. The peculiar position, however, as it obtains in the present case arises out of the fact that the disallowance which was effected by the A0 has not, the Court is informed, been challenged by the assesses. As a matter of fact the question of law which is formulated by the Revenue proceeds on the basis that the assessed income was enhanced due to the disallowance of the employers as well as the employees! contribution towards PF/ESIC and the only question which is canvassed on behalf of the Revenue is whether on that basis the Tribunal was justified in directing the AO to grant the exemption under s.10A. On this position, in the present case it cannot be disputed that the net consequence of the disallowance of the employers and the employees' contribution is that the business profits have to that extent been enhanced. There was, as we have already noted, an add back by....