TaxTMI 
TaxTMI 
2020 (8) TMI 173
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....,18,230/- be allowed as business expenditure and the disallowance may be deleted. Without prejudice to the above, on the facts and in the circumstances of the case and in law, the AO erred in computing the disallowance as per the method prescribed under Rule 8D(2)(ii) of the Income Tax Rules, 1962 ('the Rules') without considering the specific facts in the Appellant's case. That disallowance amounting to Rs. 37,03,813/- as per Rule 8D(2)(ii) of the Rules be deleted. 3. Briefly stated, the facts of the case are that the appellant filed its return of income for the assessment year (AY) 2008-09 on 29.09.2008 declaring income of Rs. 878,582,710/- under normal provisions and Rs. 2,831,882,739/- under u/s 115JB of the Act. During the course of assessment proceedings, the AO noticed that the appellant has earned tax-free interest income of Rs. 49,908,623/-. This interest was earned from various tax-free bonds like Konkan Railway Corporation, Indian Railway Finance Corporation, HUDCO, Unit Trust of India and NABARD. In response to query raised by the AO to explain why the provisions of section 14A(2) and (3) and Rule 8D shall not be applicable, the ap....
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.... the AO has rightly followed the direction of DRP that the issue is squarely covered by the decision of the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. v. DCIT (2010) 328 ITR 81 (Mum), the AO is duty bound to adopt Rule 8D for making disallowance u/s 14A, where he is not satisfied with the claim of the assessee. Further, it is stated that in the instant case the appellant has not maintained separate books of accounts for earning the exempt income. Thus the Ld. DR supports the order passed by the AO. 6. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. A perusal of the balance sheet of the appellant as at March 31, 2008 clearly indicates that the Shareholders' Funds (Share Capital and Reserve and Surplus) are at Rs. 162,20.62 Lacs, whereas the investments are at Rs. 72,58.77 Lacs. In HDFC Bank Ltd. vs. DCIT [2016] 67 taxmann.com 42 (Bom), the Hon'ble Bombay High Court referring to the decision in CIT vs. HDFC Bank Ltd. [2014] 366 ITR 505 (Bom) and CIT v. Reliance Utilities & Power Ltd. [2009] 313 ITR 340 (Bom) held as under : "15. It is clear that for the fi....
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....to taxfree investment income have a fixed component and a variable component. A view was taken that the disallowance should also be linked to the value of the investment rather than the amount of exempt income. Under Portfolio Management Schemes (PMS), the fee charged ranges between 2 and 2.5 per cent of the portfolio value which would be inclusive of a profit element for the portfolio manager. While the fixed administrative expenses were excluded on the ground that in the case of a large corporate taxpayer they would be spread over a large number of voluminous activities, the variable expenses were computed at one-half per cent of the value of the investment." Having considered the facts of the case and following the above decision, we confirm the disallowance of Rs. 29,14,417/- made by the AO. 7. Thus the 1st ground of appeal is partly allowed. 8. The 2nd ground of appeal 2. On the facts and in the circumstance of the case and in law, the AO/ DRP erred in disallowing a sum of Rs. 18,38,936/- incurred in connection with the reduction of share capital of the company considering the same as capital expenditure. That the sum of Rs. 1,86,38,936/- be....
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....ove, it is clear that expenditure incurred does not include the price paid to share holders for buying back the shares, but it only relates to expenditure incurred for carrying out buyback scheme. Assessee has claimed deduction in respect of expenditure incurred for proceeding of implementation of buyback of shares which would not in any manner enhance the capital structure of the assessee but there is outflow of capital and no deduction is claimed for outflow of capital. Therefore, Tribunal has rightly allowed such expenditure as revenue expenditure." In Selan Exploration Technology Ltd. (supra), the AO disallowed the claim of the assessee of Rs. 20,40,000/- incurred for buyback of shares and treated the same as capital expenditure of the assessee and thus added it to the income. In so far as the above amount is concerned, it was paid by the assessee to HSBC Securities and Capital Markets (India) (P.) Ltd. for advisory services. Such payment of advisory services was in connection with buyback of shares and instead of increase in the share capital, it was going to result in the decrease in funds with the buyback of the shares. In these circumstances, the Tribunal held that the a....
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....unds into the company, such expenditure is to be treated as capital expenditure. (b)On the other hand, where no such flow of funds or increase in the capital employed, the expenditure incurred would be revenue expenditure, as in such a case the company would not acquire benefit or addition of enduring nature. 11. In the present case, consultancy fee for advisory services was paid by the assessee-company for buyback of shares. Instead of increase in the share capital, it was going to result in the decrease in funds with the buyback of the shares. In these circumstances, the Tribunal rightly held that the assessee had not acquired the benefit or addition of enduring nature because after the buyback, benefit or addition of enduring nature would not arise as capital employed had, in fact, gone down. The expenditure incurred had not resulted into bringing into existence any asset. Therefore, it was rightly held to be an expense of revenue nature. 12. The contention of learned counsel for the Revenue that with lesser capital dividend in future payable shall be less and, therefore, it shall be treated as a benefit of enduring nature cannot be accepted. ....
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....set. We are of the considered view that the ratio laid down in Selan Exploration Technology Ltd. (supra) by the Hon'ble Delhi High Court after considering the decision in Brooke Bond India Ltd. (supra) squarely applies to the present case. Following the same, we delete the disallowance of Rs. 1,86,38,936/- made by the AO and allow the 2nd ground of appeal. 13. As the appellant has not pressed the 3rd ground of appeal, the same is dismissed. 14. The 4th ground of appeal 4. On the facts and in the circumstances of the case and in law, the AO/DRP erred in confirming the upward adjustment of Rs. 572,554,441/- to the income of the Appellant, in respect of advertisement, marketing and sales promotion ('AMP') expenses incurred by the Appellant, by: a failing to appreciate that the AMP expense which is incurred by way of payments to third parties is incurred 'wholly and exclusively' for purpose of business of the Appellant in India and that the AMP expenses do not benefit Colgate Palmolive Company, U.S.A ('CP USA'); b alleging that there exists an arrangement between the Appellant and CP USA for AMP expenses thereby erred in contendi....
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....O was not convinced with the said explanation of the appellant and proposed an adjustment of Rs. 63.91 crore for profits attributable to the brand developed by CP India for CP US, adopting PSM method. The AO following the direction of the DRP made an upward adjustment of Rs. 572,554,441/- to the income of the appellant in respect of AMP expenses. 16. Before us, the Ld. counsel submits that the above issue is covered in favour of the assessee by the order of the Tribunal in assessee's own case for AYs 2005-06 & 2007-08, wherein it has been held that (i) there exists no arrangement or agreement between the taxpayer and its AE and accordingly, no addition could be made on mere assumption of certain facts, (ii) the case of the assessee is in accordance with the ratio laid down by the Bombay High Court in Johnson & Johnson Ltd. (80 taxmann.com 269) and Delhi High Court in Maruti Suzuki India Ltd. v. CIT (2015) 64 taxmann.com 150 ; CIT v. Whirlpool of India Ltd. 381 ITR 154; Bausch & Lomb Eyecare (India) (P.) Ltd. v. Addl. CIT 381 ITR 237, (iii) in AY 2011-12, the DRP has decided the issue in favour of the assessee following the decision in the case of Maruti Suzuki (supra). On the....
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....ot give rise to any substantial question of law. Thus, not entertained." 17.1 Similar view has been taken by Hon'ble Delhi High Court in Maruti Suzuki India Ltd. (supra); Whirlpool of India Ltd. (supra); Bausch & Lomb Eyecare (India) (P.) Ltd. (supra); and Yum Restaurants (India) (P.) Ltd. v. ITO 380 ITR 637. In the above-mentioned decisions, it has categorically been held that in the absence of agreement between the assessee and its AE obliging the assessee to incur AMP expenditure on behalf of its AE, no international transaction can be presumed. Even if some indirect benefit has accrued to the AE by aforesaid expenditure, it could not be held that the same was incurred to promote the brand of foreign AE. Facts being identical, we follow the above order of the Co-ordinate Bench in appellant's own case for AYs 2005-06 & 2007-08 and delete the upward adjustment of Rs. 572,554,441/- made by the AO. Thus the 4th ground of appeal is allowed. 18. The 5th ground of appeal 5. On the facts and in the circumstance of the case and in law, the AO/DRP erred in confirming the upward adjustment of Rs. 8,659,200/- to the income of the Appellant, in respect of provision of re....
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.... Name of the Company OP/TC (as per TPO's Order) OP/TC (as per TP study) 1. Alphageo (India) Ltd. 41.05% 41.05% 2. Choksi Laboratories Ltd. 29.95% 29.95% 3. Vimta Labs Ltd. 15.84% 15.84% 4. TCG Lifesciences Ltd. 29.97% 29.97% 5. Dolphin Medical Services Limited Rejected by Ld. TPO 9.24% 6. Medinova Diagnostics Services Ltd. 4.47% 7. N G Industries Limited 21.56% 8. Neeman Medical International (Asia) Limited 12.74% 9. Pfizer Limited - Services 13.63% Count 4 9 Average 29.20% 19.83% The DRP confirmed the action of the TPO. The AO, following the direction of the DRP made an adjustment of Rs. 86,59,200/-. 20. Before us, the Ld. counsel submits that the appellant has taken into account 9 comparables in the TP study. The TPO excluded 5 comparables and computed single year margin of 4 comparables which comes to 29.20%. It is explained out of 5 comparables rejected by the TPO, 3 comparables are not pressed for inclusion and the appellant submits for inclusion of (i) Dolphin Medical Services Ltd., (ii) Medinova Diagnostic Services Ltd. and exclu....
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.... • Generation, evaluation and ranking of prospects • Reservoir data acquisition • Reservoir analysis Also we observe that the profit and loss account of the company reflects that the whole operating income is from seismic survey and related service. The Company's business consists of one reportable and geographical segment of seismic data acquisition and its related service within India. In the case of the appellant before us, they provide testing related services to Colgate Palmolive USA. Therefore, we have no hesitation in excluding Alphageo (India) Ltd. from the set of comparables arrived at by the TPO/AO. Accordingly, we direct the AO to exclude Alphageo (India) Ltd. from the final set of comparables. 22.1 A perusal of the annual report (2007-08) of Dolphin Medical Services Ltd. clearly indicates that it is a service industry (page 5). It is engaged in the business inter alia of establishing, providing and maintaining diagnostic laboratories and equipments for testing and setting up laboratories for medical investigations and research (page 7). The generic names of 3 principal products/services of Dolphin are 'Diagnostic, Ophthalmic a....
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....in respect of each segment undertaken. On completion of a given assignment, CP India prepares a report of its work performed, methodology adopted and findings. This report is then sent to the entity requesting for the assignment. 8.2.12 During the year, CP India had carried out various activities like under arm clinical studies, Advanced Technology Oral Care Studies, UAP Stability Studies, etc. 8.2.13 It is pertinent the note that all the above activities are carried out by CP India within the broad parameters laid down by the respective associated enterprises." One may also examine functions performed, assets employed, risks assumed mentioned at page 40-43 of the TP study of the appellant. 22.2. Functional analysis enables comparison of controlled transactions with uncontrolled transactions. The hon'ble Supreme Court in the case of Morgan Stanley & Company Inc (2007) 292 ITR 416(SC) has placed significant emphasis on FAR (functions performed, assets owned and risks assumed by the associated enterprises involved) analysis for benchmarking exercise, also known as comparability analysis, for determination of arm's length price of a transaction between....
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....on is being pronounced today, much after the expiry of 90 days from the date of conclusion of hearing. We are also alive to the fact that rule 34(5) of the Income Tax Appellate Tribunal Rules 1963, which deals with pronouncement of orders. Let us in this light revert to the prevailing situation in the country. On 24th March, 2020, a nationwide lockdown was imposed for 21 days to prevent the spread of Covid-19 epidemic, and this lockdown was extended from time to time. As a matter of fact, even before this formal nationwide lockdown, the functioning of the Income Tax Appellate Tribunal at Mumbai was severely restricted on account of lockdown by the Maharashtra Government, and on account of strict enforcement of health advisories with a view of checking spread of Covid-19. The epidemic situation in Mumbai being grave, there was not much of a relaxation in subsequent lockdowns also. In any case, there was unprecedented disruption of judicial work all over the country. As a matter of fact, it has been such an unprecedented situation, causing disruption in the functioning of judicial machinery, that Hon'ble Supreme Court of India, in an unprecedented order in the history of India an....